Factchecker: Bread not subject to VAT

Bread will not attract value added tax (VAT) at the rate of 16 per cent from July 1 as widely reported.

While, the 2021 Finance Bill carries a proposal to remove the supply of ordinary bread from the zero-rate list of goods, its supply remains listed under tax exempt supplies.

According to an analysis of the Value Added Tax of 2013 by Citizen Digital and collaborated by analysts at PwC, the supply of ordinary bread is categorized under both the zero rated and exempt schedules.

This implies that the deletion of ordinary bread from the zero rated schedule, does not through its supply to the scope of VAT.

Nevertheless, the cost of bread is still tipped to increase slightly with manufacturers being barred from lodging claims to recover input taxes.

“We expect this to lead to an increase in the cost of bread since suppliers will not be eligible to recover input tax incurred. This contravenes the Government’s Big Four Agenda of ensuring food security for its citizens,” noted analysts at PwC.

On Thursday, the Bakers Association of Kenya (BAKE) and the Bakers Sub-sector of Kenya Association of Manufacturers wrote an open letter to the National Treasury and the National Assembly protesting the deletion of bread from the zero-rated category.

Despite, the supply of bread remaining within the exempt category, the association is likely still to protest the inability to recover input taxes which would lead to the firms passing on the unrecoverable costs to consumers.

If adopted by Parliament, the deletion of bread from zero-rated supplies will likely see an immediate rise in the cost of bread to Kenyans when the provisions of the Finance Bill take effect on July 1.

The listing of bread among both exempt and zero-rated supplies in nevertheless puzzling as it is surprising.

This is as goods are generally listed in either one of the categories but not both.

Zero-rated supplies are not subject to VAT while manufacturers (suppliers) are at the same time cleared to lodge claims for input tax compensation.

Meanwhile, exempt goods remain outside the scope of VAT but suppliers cannot lodge claims to recover input tax.