Bakers warn VAT on bread puts at risk over 100,000 jobs

May 20, 2021 Newsroom

Bread manufacturers in Kenya have called on the Treasury to freeze the planned introduction of 16 per cent VAT on the commodity saying the move is likely to see some firms close shop.

In the 2021/22 financial year, the Treasury plans to move bread from the zero rated to vatable category of products as the government seeks to raise revenue for the proposed KES3.5 trillion spending plan.

“Bread is considered a basic staple commodity consumed largely by persons who are categorized as living within the poverty level. This includes students who study in boarding schools,” said sector lobby, Bakers Association of Kenya (BAKE), in a May 20 letter to the Treasury and Parliament.

In the Finance Bill 2021, milk powder, baby formula, malaria diagnostic kits, immunological products, medical ventilators, physiotherapy accessories, diagnostic and laboratory reagents, breathing appliances products have been moved from vatable to the exempt category.

Bread is a common food item available across the country and retails on average between Kes55 and Kes55 per 400g loaf.

Over the years, the product has been VAT exempt, but stiff competition in the industry has left manufacturers with thin margins, pushing them to ride on volume and scale to make profits.

A steady rise in fuel prices in recent months as well as the coming into force of minimum turnover tax has worked to their disadvantage, eroding profits in the sector.

“The introduction of 16 per cent VAT on this commodity will further increase the average price of a 400g loaf of bread by approximately Kes8, thereby making it unaffordable to the majority of Kenyans,” said BAKE.

Unchecked, the manufacturers foresee a dip in demand, forcing some companies to close doors in turn sending over 100,000 employees out of job.

Further, BAKE is cautioning that the latest move by the Treasury will see the emergence of small-scale bakers, who can hardly comply with tough demands of the taxman in turn pushing up the compliance and enforcement costs.

Early this year, bread prices inched up on account of rising global prices of wheat and other raw materials, pushing up the cost of bread in Kenya for the first time in four years. At the time, the cost of a tonne of wheat surged by 30 per cent to Kes33,000 from Kes25,300.

In the 2021/22 budget, locally manufactured sugar confectionary and white chocolate is set to attract excise duty raising costs for the commodity.

Jewellery and nicotine products will also attract excise duty at the rate of 10 per cent and Kes5,000 per kilogram respectively.

Further, the Finance Bill proposes the re-introduction of a 20 per cent exercise duty on betting stakes even as it withdraws duty on imported glass bottles.