KENYA – The Kenyan Treasury is deliberating the imposition of a 16%  value-added tax (VAT) on milk as part of a new strategy to enhance revenue collection, with a specific focus on middle-class households.

According to Treasury Cabinet Secretary Njuguna Ndung’u, a recent study conducted by the government unveiled shortcomings in the current zero-rated VAT framework on milk.

Prof. Ndung’u emphasized the necessity of reassessing tax policies to ensure their equitable distribution of benefits noting that the structure, aimed at ensuring affordability for lower-income consumers, has inadvertently favored the middle class.

He underscored the need for reforms to ensure that tax policies effectively target the intended beneficiaries.

In addition to the proposed VAT on milk, the Treasury is considering extending the 16%  VAT to bread, a move that could potentially lead to a price increase of at least Kes 9 for a 400g loaf.

During the Africa Fiscal Monitor forum organized by the International Monetary Fund (IMF), Prof. Ndung’u highlighted that a significant portion of VAT refunds, approximately 95%, is directed towards bread and milk, disproportionately benefiting the middle class.

This deliberation follows the Treasury’s unsuccessful attempt last year to impose a 16% VAT on infant milk formula.

The proposal, aimed at increasing revenue, was rejected due to concerns over its potential impact on accessibility.

The Health Ministry advocated for exclusive breastfeeding promotion, fearing that increased prices of substitutes could hinder this objective.

Despite the Treasury’s previous proposal to remove milk specially prepared for infants from the list of tax-exempt items, known as baby formula, in the Finance Bill 2023, it faced opposition and was not implemented.

The potential inclusion of VAT on milk underscored the government’s commitment to optimizing revenue streams.

However, concerns have been raised regarding the affordability of essential food items for low-income households.

Striking a balance between revenue generation and socioeconomic considerations remains crucial for the Treasury to ensure equitable taxation policies.

As discussions progress, stakeholders await further developments and anticipate measures that safeguard the interests of all segments of society while ensuring fiscal sustainability.

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