Firms start passing tax benefits on to consumers

Safaricom will give its customers additional credit and internet bundles in line with the two percentage cut in VAT. PHOTO/COURTESY

Companies have started passing on the tax benefits announced by President Uhuru Kenyatta to consumers in what is set to soften the blow from the Covid-19 pandemic.

President Kenyatta lowered the value added tax (VAT) from 16 per cent to 14 per cent as part of the economic package to help Kenyans navigate the difficult times ahead during this curfew period.

Mobile operators Safaricom and Airtel, pay TV firm Multi Choice, hotels and restaurants doing home delivery services, as well as utility service providers have already made the tax adjustments on their tariffs.

This means that it will be cheaper to make calls, send money, buy food from hotels, and buy fuel and electricity, among others.

In addition, newspapers, books, mobile phones, electronics, computer hardware and software will also attract less VAT.

But a two-percentage reduction will only translate to about Sh2 for a purchase worth Sh100 that attracts VAT, and Sh20 for every Sh2,000.

Kenya Power said it started implementing the new tax on April 1. “We have been working in consultation with the Energy ministry and the sector regulator on modalities of implementing the tax reductions. We already applied VAT reductions from April 1, and all purchases from this date will reflect the lower VAT of 14 per cent in line with the government circular,” a Kenya Power spokesman said.

He said those who buy electricity tokens from April 1 will be charged less VAT and those on post-paid connections will see this relief in their monthly bills.

Power is an essential service and all Kenya Power staff have remained on full shift since the Covid-19 outbreak.

Attention now shifts to manufacturers who are always reluctant to pass such tax benefits to consumers.

Safaricom will give its customers additional credit and internet bundles in line with the two percentage cut in VAT.

A customer who buys Sh100 airtime will get an additional Sh2 of talk time; those who buy data bundles worth Sh2,900 will get Sh58 additional internet.

Multi Choice also cut the cost of subscription by between Sh19 and Sh130 depending on the bouquet.

The cost of a monthly subscription to DStv Premium has fallen to Sh7,370 from Sh7,500, DStv Compact by Sh45 to Sh2,455, while subscribers of GoTv Max will now pay Sh19 less at Sh980.

Pwani Oil has also lowered the retail price for its products, with the cost of 250-gramme Sawa soap falling by Sh1 to Sh49, while three-litre Fresh Fry cooking oil will now retail at Sh588, a Sh12 drop.

But consumers should not expect price changes on basic commodities, especially bread and flour, since they were zero-rated in previous tax amendments.

Also, raw foods do not attract any VAT so no changes in prices should be expected.

It is not clear how the government will police manufacturers to ensure they pass the benefits to consumers to achieve the intended impact on Kenyans.

Often, retailers continue selling their stock at the old price and only lower prices when they receive new stocks.

A global disruption in the supply chain has also made it hard for a number of household goods to get to East Africa.

This has resulted in stock outs and price hikes as demand outstrips supply.

By lowering the VAT, President Kenyatta said he wanted to increase the amount of money in the pockets of Kenyans given that they will use a less money on purchases.

Employees should also expect to pay lower income taxes at the end of this month on their Pay-As-You-Earn (PAYE), which will now be charged at a maximum of 25 per cent, down from 30 per cent.

Besides, those earning less than Sh24,000 will not be taxed. Companies will also enjoy lower corporate tax, the tariff was reduced to 25 per cent from 30 per cent.

Corporate tax is charged on profit, which means that shareholders will have more dividend if their companies are lucky enough to make profit.

Apart from VAT, which is already in force, the other tax cuts will be ratified by Parliament.