Stock Unga, stock milk, stock medicine. The Jubilee Government has embarked on a process to increase their prices. The prices of these products may soon not be affordable to the common Mwanchi
For there before the National Assembly, there has been tabled a very evil Bill. It is known as the Tax Laws (Amendment) Bill, 2018. It is a government sponsored legislation. The Bill seeks to amend the Value Added Tax Act by removing certain items from being classified as zero rated to being classified as exempt supplies.
Some of the goods reclassified from zero rate to exempt are the following:
“Maize flour, ordinary bread and cassava flour, wheat or flour and maize flour, Milk and cream, and raw materials for manufacturing medicaments.”
In the year 2017, when the price of Unga had hit the roof, the Treasury CS designated supplies of these product to be zero rated in order to ensure lowering the price of unga and milk affordable.
They are now reverting them to exempt, making them less affordable to mwananchi. How callous can this get?
A TUTORIAL: Difference between exempt and zero-rating
As you are aware, VAT is chargeable on taxable supplies, either the standard rate which is 16% or zero percent (0%). Zero rating of goods or services means that such supplies are taxable, but at the rate of zero percent (0%). On the other hand, exemption means that such supplies are not taxable.
Without deeper look, zero rating and exemption may look as if they are the same thing. It is not the case.When supplies are zero rated, the supplier of such supplies is eligible to claim input VAT credit in relation to VAT incurred in making such supplies.
That is, if you paid VAT when buying an item, that VAT will be refunded or offset by future obligations. In such a case therefore, VAT does not result in additional cost, which would otherwise have been passed on to the final consumer arising from unclaimed input tax.
On the contrary, for exempt supplies, the supplier is not eligible to claim any input tax credits in relation to the VAT incurred in making of such supplies. Therefore, all the input VAT, which cannot be claimed, is hence factored in the price charged to the final consumer thus making such supplies more costly.
It could be that the government intend to avoid shielding the burden of paying VAT refunds, which are claimed on making of zero rated supplies.
But there is a problem. This will significantly increase the costs of these basic goods. For suppliers cannot claim the input, they will pass it as part of the price. This way, the prices flour, milk, bread and medicaments are bound to increase.