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Cheaper power, gas in VAT relief

The cost of electricity, cooking gas, detergents, sanitisers and processed foods will fall after Kenya cut the value-added tax rate to 14 percent from 16 percent to ease pain on households facing lower pay in the wake of coronavirus.

This will mark the first time in seven years Kenya will be reducing VAT after including more commodities under this tax category in 2013.

Other goods that will attract lower VAT are newspapers, books, phones, electronics, computer hardware and software.

Raw foods are exempted from the tax.

The impact of social distancing and restriction for businesses like schools, bars and restaurants looks set to impact on consumer spending, setting stage for job cuts and unpaid leave to workers struggling with reduced cash flow as well as reduced earnings for traders.

“The National Treasury shall call the immediate reduction of VAT rate from 16 percent to 14 percent effective April 1, 2020,” President Uhuru said yesterday.

The value-added tax is key to the government plans to shrink its fiscal deficit while funding essential programmes.

The Kenya Revenue Authority (KRA) collected Sh211 billion in the six months to December.

President Kenyatta in 2018 cut VAT on petroleum products to eight percent from 16 percent after facing a fuel dealers strike, angry commuters and a lawsuit after transport and fuel prices jumped.

The Treasury expects government revenue collection to be hit as both imports and domestic consumption slow in the wake of restrictions that followed the coronavirus outbreak.

“We are looking at underperformance as a result of Covid-19, of about 70 billion (shillings) … in terms of revenue for the remaining three months (of this financial year),” Treasury Sectary Ukur Yatani said earlier.

This story first appeared on Business Daily.