In a surprising twist, the Ruto administration seems ready to bid farewell to a decade-old tradition of tax breaks on essential goods and services. Why, you ask? Well, the International Monetary Fund (IMF) has been knocking on Kenya’s door for years, urging them to reconsider their generous tax exemptions. And it looks like they’ve finally decided to listen.
Treasury Secretary Njuguna Ndung’u recently spilled the beans on a plan to end the value-added tax (VAT) zero-rating for a wide range of goods. What’s on the chopping block? Items like maize flour, cooking gas, ordinary bread, medicaments, agricultural pest control products, and animal feeds are all in the firing line.
But that’s not all, folks! This proposed overhaul will also extend its reach to essential supplies that have been enjoying VAT zero-rating privileges. Locally assembled mobile phones, motorcycles, electric bicycles, solar batteries, and even electric buses are about to feel the taxman’s pinch.
The Medium Term Revenue Strategy, slated to kick in from July 2024, is shaping up to be the bearer of bad news. It suggests that zero-rating for VAT will be limited to the export of goods and services, while goods in their raw state might get a pass.
Get ready for the full monty of IMF-backed reforms! The VAT Act underwent a major facelift in 2023, and now it’s time to put these changes into action.
The IMF has been cracking the whip on Kenya’s tax policies for a decade. Their goal? Tax everything! They do promise to protect vulnerable households with social protection programs, though. So, don’t worry, your cat’s food might not become a luxury item just yet.
Remember that July when VAT on fuel doubled to a whopping 16 percent? Yep, it’s all part of these reforms. The tax landscape is changing faster than you can say “tax return.”
The VAT Act’s First Schedule (exemption) and Second Schedule (zero-rating) are in for a review. The plan? Streamline the exempt and zero-rated supplies and get Kenya’s VAT system in line with international best practices, or so says Prof Ndung’u in the draft revenue strategy. Basically, they’re looking to tax as much as they can, except for unprocessed goods.
The Ruto administration is on a mission to find the perfect strategy to ease the tax burden on essential goods and services. Good luck with that!
The Treasury argues that Kenya has been bleeding revenue for years due to its overly generous tax breaks. They estimate that tax concessions on domestic VAT, particularly for traders with annual sales of more than Ksh5 million ($34,072), dropped to Ksh211.94 billion ($1.44 billion) in 2021 from Ksh234.38 billion ($1.6 billion) in 2020.
While these numbers might not sound like chump change, domestic VAT accounted for a whopping 82.29 percent of the Ksh259.51 billion ($1.8 billion) revenue lost by the Kenya Revenue Authority in 2021. Ouch! Also Read: Kenya Government’s Wallet Goes on a Salary Splurge