The VAT Bill 2012 has been met with hostility from public views as well as members of parliament. A number of MPs including Dujis MP Aden Duale and Yatta MP Charles Kilinzo have announced that they will spearhead motions to have the controversial bill withdrawn.

The Bill, which was approved by cabinet in February 2012 is awaiting introduction into the house. It seeks, among other things, introduction of 16% VAT on certain items, mostly agricultural inputs, food and pharmaceutical items that are neccessities to the common.

Changes Made

The Nine Schedules in the current VAT Act have been reduced to two Schedules in the draft VAT Bill 2012. The First Schedule contains exempt supplies which have been rationalized and largely limited to;-

a) unprocessed agriculture produce; - That include unprocessed milk, eggs, vegetables and tubers

b) financial and Insurance services

c) medical, agricultural, veterinary , nursing and educational services

This leaves the consumer paying VAT at rates of 16% on items including soya, groundnuts and mosquito nets which were initially exempted from the tax. The VAT Bill also seeks to remove basic food stuffs such as maize, milk, bread and wheat from the current exempt status to be taxed at 16%. Pharmaceutical products, farm inputs, textbooks, newspapers, mosquito nets and fishing nets will also be taxed under this bracket.

The second schedule deals with zero-rated items including pharmaceutical products, medical, general hygiene items and first aid kits some of which could be subjected to the 16% VAT.

Removal of 12% VAT rate

The draft bill also seeks to remove the lower rate of 12% on residual fuel oils. This move in effect will see the cost of production by industries go up as most power generating plants and other manufacturing industries use this kind of fuel. When charged at the higher 16% VAT rate, the manufacturers will push the cost through products to have the consumers bearing the cost. This could also affect consumer power bills drawn from electricity generation costs.

The IMF is advocating for this bill.