Kenyans hit hard as prices of food and gas shoot up 

On a chilly Monday morning, Jane Wangui is cooking chapati in the busy Gikomba market, which she sells at Sh10 each to the thousands of traders and shoppers who throng the market.

However, she is increasingly finding it harder to stay sustain production of her popular product due to a rise in the price of cooking oil, flour and cooking gas.

The two litres of cooking oil she used to buy at Sh360 only months ago has gone up to Sh480. Ms Wangui also used to buy a 2kg packet of wheat flour at an average of Sh115, but she now pays Sh130 for the same quantity.

Her pain was over the weekend amplified when she refilled her 6kg cooking gas cylinder at Sh1250, the highest she has ever paid and Sh300 more than the Sh950 she paid on her last refill.

The all-time high gas prices come days after Kenya Revenue Authority (KRA) started implementing the new 16 per cent Value Added Tax (VAT) on cooking gas last week.

The tax was introduced by the Finance Act, 2020, but its implementation by the taxman was delayed by a year over concerns of high cost of living due to the pandemic.

Yet Ms Wangui still sells chapati at Sh10.

“The traders here are used to buying chapati at Sh10 and if you increase the price, they will walk away. Maybe if every seller decides to increase the price, then I also can, but at this moment, I just have to go home with less earnings,” she says.

Kenyans’ woes are linked to government implementation of new tax measures to finance  the Sh3.6 trillion budget for financial year 2021/22. The measures coincide with acute shortage of wheat, crude oil and edible oils in the global market. 

High cost of bread

The price of cooking oil has shot up due to global shortage of palm oil following constrained production in key source markets in South East Asia, especially Malaysia and Indonesia, from where Kenya sources most of its edible oil, and also diversion of the oils into making biofuels.

The price of palm oil, which is used to make the majority of Kenya’s cooking oil, touched Sh108,000 per tonne in March —the highest since 2008, up from Sh101,000 in January, forcing local manufacturers to raise their prices. 

The higher prices of cooking oil are also informed by the reintroduction of the 16 per cent VAT on the commodity, which had, alongside other crucial commodities, been lowered to 14 per cent to cushion consumers from the Covid-19 pandemic.

Similarly, consumers are reeling from the high cost of bread — a staple in most households — after bakers raised prices by up to Sh5 to Sh55 for a 400-gramme loaf.

More than 75 per cent of Kenya’s wheat is imported, and a recent 30 per cent rise in the price of the commodity to Sh33,000 per tonne from Sh25,300 has seen the manufacturers pass it on to consumers.

However, Kenyans were spared more pain on the cost of bread after MPs rejected the Treasury’s proposal to introduce a 16 per cent VAT.

Prices of maize flour, a staple, also rose in May as farmers hoarded maize, expecting a rise in the price of the cereal, following Kenya’s ban on maize imports from Uganda and Tanzania, on aflatoxin contamination claims.

This has pushed the price of a 2kg packet of maize flour up by Sh9, with retailers now selling the packet between Sh100 and Sh120, further increasing the cost of food.

Tamarind Tree Hotel General Manager John Musau expects a five per cent rise in the cost of operations due to the rise in the price of these basic commodities, which will be an additional blow to the hotel at a time the hospitality industry is gradually recovering from loss of business. 

Loss of customers

Like Ms Wangui, the GM says the hotel is yet to pass on the increased costs to customers, also worried about a fresh loss of customers with increased food and service costs.

“We’re facing a very difficult situation because currently, we’re just absorbing the increase in the price of raw materials because increasing our prices will drive away customers,” Mr Musau said. 

“As a result, I expect our costs to rise by about five per cent this year, which is a big blow to us.

Eventually however, we’ll have to pass the higher costs to consumers when the (hospitality) industry recovers,” he said.

After the President signed into law this year’s Finance Bill, the taxman will now raid internet service providers and mobile phone companies for additional taxes.

MPs amended the Finance Bill to increase the rate of excise duty from 15 per cent to 20 per cent on telephone and internet data services.

Kenya seems to be following in the footsteps of its neighbours in taxing internet services to plug budget holes.

Data is a quick cash cow for tax collectors given that most government services such as drivers’ licences, land transfers and parking are now offered online.  This will also push up the cost of airtime. 

Lost their jobs

Another hidden tax proposed by the committee is an increase in the rate of excise duty on imported sugar confectionery from Sh20 to Sh35 per kilo.

The new tax measures are set to spur inflationary pressure and hit low income earners hardest, as the government struggles to plug a financing deficit of Sh952.9 billion in this year’s budget. 

Data from the Kenya National Bureau of Statistics (KNBS) shows that the monthly inflation rate hit 6.32 per cent in June, which is the highest level in 16 months since it clocked 7.17 per cent in February last year.

KNBS tracks a select basket of goods and services to measure changes in the cost of living including onions, tomatoes, beans, peas, beverages, fuel and transport costs. 

The Kenya Revenue Authority has a revenue collection target of Sh2.04 trillion this financial year, which is up from a collection of Sh1.67 trillion in the just ended fiscal year. 

The International Monetary Fund has imposed tough conditions as part of its budget-support loan disbursements, requiring the government to cut spending and widen the tax base, pushing the State to raise tax rates.

Covid-19 shutdowns for most of last year blunted economic growth to 0.6 per cent in 2020, reflecting a hit on household incomes as millions lost their jobs.

Treasury is banking on higher consumption and exports to play a pivotal role in reviving economic growth to a projected rate of six per cent this year.

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