The Bakers Association of Kenya(BAKE) wants the government to reconsider plans to introduce 16 per cent VAT on ordinary white bread.
In an appeal, they told the National Treasury taxing the commodity will hurt the sector already struggling from the effects of the Covid-19 pandemic and high fuel prices.
“The hike in fuel prices during the past few months has further eaten into the existing margins, reducing the profits we make. This new tax will further hurt the sector,” said BAKE and the bakers sub-sector of the Kenya Association of Manufacturers in the appeal.
Ordinary bread is currently one of the cheapest food commodities retailing between Sh50-55 per 400gramme loaf. A large portion of Kenyans rely on bread to feed themselves and their families.
In the Finance Bill 2021, National Treasury Cabinet Secretary Ukur Yattani is seeking to introduce 16 per cent Value Added Tax(VAT) on the supply of ordinary bread.
The commodity is currently among food items enjoying zero-rated VAT status.
If the proposal in the Bill is approved , the cost of bread is likely to go up as bakeries pass on the tax shops absorb the costs to consumers.
According to BAKE, the introduction of the 16 per cent VAT on bread will increase the average price of bread by approximately Sh8 making it unaffordable to many Kenyans.
The reverse effect of this, BAKE notes is that, the demand for bread will fall drastically while the taxes will eat into the gross margins of manufacturers forcing them to close down permanently. This could put at risk more than 10,000 jobs.
Mary Njeri, a teacher in Nairobi says if the price of bread goes higher than 55 she will not be able to afford the commodity to feed her family, therefore she will look for an alternative.
“The government should put Kenyans into consideration when introducing these taxes, life is already expensive,” said Njeri.
Eric Musyoka, who has a family of three told the Star that nowadays he has even started to consider bread as a luxury since it hit Sh55, buying it only on weekends for his family.
Musyoka said that if the cost increased he will now completely stop buying bread, as it will be too expensive.
“We are appealing to the National Treasury to repeal this proposal and to retain ordinary bread as a zero-rated commodity for the sake of the livelihoods of millions of Kenyan consumers and employees,” BAKE said.
It said increased costs on staple products is the last thing Kenyans need, especially after turmoil of the last year with the Covid-19 pandemic.
In a review of the new proposals in the Finance Bill 2021, consultancy firm Deloitte East Africa also notes that introducing the VAT on bread will hurt Kenyans with an increase in the cost.
“Given that bread is a basic commodity, which is consumed by many households in Kenya, keeping it under the zero-rating schedule will be more beneficial to ensure it remains affordable to the local mwananchi,” the firm says.
Bread manufacturers in February had to increase the ex-factory price of bread after many years due to increases in world wheat and other raw materials.
Russia, the world’s largest exporter, slapped export taxes on wheat and grain export quotas thus increasing the cost.
BAKE notes that the zero rating of bread allowed manufacturers claim input VAT noting that this was the reason of stability in the price of bread despite increase in the import bill.