A statement by Finance minister Njeru Githae in the recently presented budget statement reads:
As promised by my predecessor last year, my ministry has now finalized the review of the VAT law to align it to the Constitution by making it simpler and modern, based on international best practice. After extensive consultations with key stakeholders, including relevant Departmental Committee of Parliament, the draft bill was discussed and approved by the Cabinet. I am, therefore, pleased through this budget, to table the VAT Bill 2012 for debate and approval by this House.
This statement is meant to be an economic growth pointer in terms of adding to the tax collection basket by the Kenya Revenue Authority (KRA). The VAT bill proposes to scrap the lower VAT rate of 12% and remove the zero rate on essential items, like food.
The proposals therefore leave Kenyans, in the country’s quest to grow, with a consumption tax of 16% VAT which will essentially see prices of basic food items like rice and maize flour go up in turn rising the cost of living. On the list of affected items also will be the zero rated items like sanitary towels, exercise books, infant food and medicated toiletries that will be slapped with 16% VAT rate. Cooking gas which was initially taxed at 12% VAT could also be taxed at the new 16% rate.
The VAT Bill 2012 seeks to reduce the period of lodging refund claims from 12 months to 3 months.Under the current VAT regime the period for lodging a claim is 12 months which to many business was a long period because their capital was being tied up thus no investments were being made.