Business

Consumers yet to feel relief of VAT reduction

Consumers yet to feel relief of VAT reduction
  • The prices of essential commodities such as maize and wheat flour, soap, tea leaves, milk, rice and cooking oil, for instance, have remained relatively unchanged from last month.
  • The negative effects of low purchasing power have extended into the construction industry, where suppliers of equipment have had to contend with low sales.

It is more than a month since President Uhuru Kenyatta directed that Value Added Tax (VAT) on goods and services be reduced from 16 to 14 per cent.

This was meant to make basic commodities more affordable to consumers during the economic crisis precipitated by the Covid-19 pandemic.

Despite the reduction, the prices of many commodities on supermarket shelves and other retail outlets have remained the same, either because the reduced rate is too insignificant to be noticed or perhaps because the new VAT rates have not been effected.

SHORT-CHANGED

Whatever the case, the unchanged prices have made consumers and sellers alike feel short-changed, especially after the government promised that it would do everything in its power to cushion them against the economic downturn that has seen some face pay cuts and others close down their businesses.

The prices of essential commodities such as maize and wheat flour, soap, tea leaves, milk, rice and cooking oil, for instance, have remained relatively unchanged from last month.

A two-kilogramme packet of Ndovu maize flour, for example, which retailed at Sh116 in January, is still selling at the same price in supermarkets, and at about Sh120 in local shops. A litre of Kimbo premium cooking oil, which retailed at Sh241 in December last year now costs Sh240 at Carrefour.

Now that schools are closed and children are at home, the prices of other items such as baby products and toys, whose demand has gone up as parents try to keep their children occupied remain the same.

Miss Jane Wangui, a baby-products vendor on Ngong Road, says that this has affected her line of work because the steep prices have acted as a barrier between her and the customer.

“I would be lying if I said that I have seen the 2 per cent reduction in VAT reflect in the prices at which I am getting my products, but at least we appreciate that the prices of the commodities haven’t gone up,” she said.

INCREASE DEMAND

Another business that perhaps has seen an increase in demand as a result of people spending more of their time at home is electronics. People are looking to items such as television sets and mobile phones to keep them occupied.

The negative effects of low purchasing power have extended into the construction industry, where suppliers of equipment have had to contend with low sales.

As there is virtually no business being transacted, Simon Mwangi, a supplier of house fittings who runs an interior design firm, claims that a reduction of two per cent on VAT is thus too low.

“They should consider reducing the VAT much further, and do more justice to the consumer like they did for banks,” he added.

Mr Brian Rotich, an economist, appreciates this initiative because it supports all the tax waivers and incentives that the government granted employees and business owners.

But he says that since there is very little business being transacted, more should be done to improve liquidity.

CASH RESERVES

“The government has been collecting a lot of tax. Unfortunately, we haven’t been seeing where this money has been channelled,” he said.

“Now is the time for the government to come in and prove to us that the money they have been collecting hasn’t been going to waste. They should return it to the people.”

In the event that the exchequer does not have enough cash reserves, Mr Rotich suggests printing money and the cash be given to business owners to be able to cater for expenses such as paying their employees.

“This way, the consumers’ spending power will increase, and with more liquidity, people will have no problem in paying the VAT, even if it stands at 16 per cent.”

Greater consumer spending power will go a long way in helping Kenyans cope with the high prices of essential commodities such as cooking gas and other fuels, whose prices have remained relatively high despite being VAT-exempt.