KENYA – The Kenyan Treasury is considering introducing a 16% value-added tax (VAT) on bread under the Finance Bill 2024, potentially leading to a minimum increase of KES 10 in the price of Kenya’s favourite breakfast meal.

Under the proposed changes to the VAT, a 400g loaf of bread could see a price hike from the current average cost of approximately KES65 to around KES75.

On the Finance Bill 2023, the introduction of an 8 percent increase to 16 percent VAT on fuel, among others, sparked a public outcry.

With the current bread being VAT-zero-rated, this 16 percent on bread will certainly raise nerves among Kenyans.

During the Africa Fiscal Monitor forum organized by the International Monetary Fund (IMF), Prof. Njuguna Ndung’u, Treasury Cabinet Secretary, explained that government studies revealed the current VAT structure, zero-rating bread and milk, failed to effectively support targeted poor households but instead benefited the middle class with higher incomes.

Consequently, the treasury’s decision to introduce a 16% VAT on bread and milk aims to enhance revenue collection from middle-class households.

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.

This cames after bread manufacturers, in early 2023, adjusted the price of bread arguing that the cost of sugar and fuel among other things have gone up significantly, resulting in adjustments in prices.

“As a result of increased prices of raw materials in the baking industry, the cost of production has become untenable and hence we have increased our prices effective from May 22, 2023,” read a notice by bakers.

This was the first time in the history of the baking industry that the consumer price of the commodity jumped by a huge margin from the common range of KES 45 to KES 50.

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