KENYA – The Kenyan Treasury is considering introducing a 16% value-added tax (VAT) on bread and milk in a fresh push to boost revenue collections from middle-class households.
If the bill passes, Kenyans will witness a rise in the cost of milk and bread by at least KES 9 for the 400g loaf of bread.
Prof Njuguna Ndung’u, Treasury Cabinet Secretary said that studies by government agencies had shown that the current structure where VAT on bread and milk is zero-rated had failed to cushion the targeted poor households and instead benefited the middle class who have relatively high income.
Speaking during the Africa Fiscal Monitor forum organized by the International Monetary Fund (IMF), the CS revealed that bread and milk accounted for 95% of total value-added tax (VAT) refunds, hurting government revenues.
“When we started doing some simulation work, we realized that we could gain a lot. Once you have high tax rates, the political remedy is often to try and create a rebate or should I say create refunds for some of the institutions dealing with products that are related and being considered to be consumed by the poor,” Prof Njuguna said
According to him, the total VAT collected in Kenya comprises about 40%of the total taxes but 18% of it goes to tax refunds for products assumed to be consumed by the poor.
However, the CS noted that these products are consumed by the middle class adding that the current structure where VAT on bread and milk is zero-rated had failed to cushion the targeted poor households and instead benefited the middle class who have relatively high income.
The Cabinet Secretary said the government was exploring a mechanism through which consumers will be able to lodge their refund claims directly to the Kenya Revenue Authority (KRA) using receipts generated at the point of purchase.
“We missed the boat somewhere. In this age of technology, we can decide that we are going to have personalized tax refunds through one’s receipts when we purchase things in the supermarket. Then we are going to compensate you directly and not through the firm,” Prof Ndung’u said.
However, the success of the system will heavily depend on the rollout of the electronic tax invoice management system (eTIMS) whose deadline for onboarding is just days away on March 31.
Last week, the KRA announced the rollout of eTIMS Lite, a solution targeting the mass onboarding of players in the country’s informal sector.
The taxman rescinded its decision to exempt farmers and small businesses with an annual turnover of less than Sh5 million from producing invoices through the eTIMs.
The taxman said all persons carrying out business in Kenya will be required to electronically generate and transmit invoices.
In the Tax Procedures (Electronic Tax Invoice) Regulations, 2023, the KRA had listed supplies by businesses with an annual turnover of less than Sh5 million among nine transactions that would be exempted from the electronic tax invoice in a move that brought relief for farmers and small businesses.
“The following transactions shall be excluded from the requirement of an electronic tax invoice…supplies by a resident person whose annual turnover is less than five million Kenya shillings,” the KRA said in the regulations.
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