KENYA – The government has scrapped the proposed 16% VAT on bread in the Finance Bill 2024, citing the need to ease the financial burden on Kenyans after considering feedback from public participation meetings.

Speaking at State House Nairobi on June 18, following a United Democratic Alliance (UDA) Parliamentary Group meeting chaired by President William Ruto, National Assembly Finance Committee chair Kimani Kuria announced that the changes were made after thorough deliberation and public outcry.

Bread is currently VAT-zero-rated, so the proposed 16% tax increase has sparked concerns among Kenyan citizens, as it is a staple breakfast food.

This decision follows the Finance Bill 2024, which, if enacted, could have raised the price of a 400g loaf from the current average of approximately KES65 to around KES75.

Earlier in March, Cabinet Secretary Njuguna Ndung’u of the National Treasury defended the proposed tax, arguing that zero-rating bread and milk had not effectively benefited low-income households but rather the middle class.

He pointed out that bread and milk, mostly consumed by the middle class, accounted for 95% of total value-added tax (VAT) refunds, adversely affecting government revenues.

“When we started simulations, we realized significant potential gains. High tax rates often prompt political efforts to create rebates or refunds for products considered essential to the poor,” Prof. Njuguna explained.

According to him, VAT constitutes approximately 40% of total taxes collected in Kenya, with 18% allocated to tax refunds for products assumed to be consumed by low-income households.

Therefore, the Treasury’s decision to introduce a 16% VAT on bread and milk aimed at increasing revenue from middle-class households.

However, following consumer backlash, President Ruto convened a meeting in May with representatives from the National Treasury and the Central Bank at State House Nairobi to address taxation on essential goods.

Ruto expressed concerns over the potential impact on consumers who are already facing a high cost of living.

During the June 18 meeting, Kimani Kuria disclosed dropped proposals, including taxes on bread, locally manufactured diapers and sanitary pads, motor vehicles, and an eco-tax.

“The public participation exercise was not in vain,” Kimani stated.

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