Kaluma proposes end to zero-rated VAT to benefit consumers directly
Homa Bay Town MP Peter Kaluma has called on the government to scrap the zero-rated Value Added Tax (VAT) system, saying it benefits producers more than consumers.
In a statement shared via his X account on Sunday, June 8, 2025, Kaluma said that although many basic goods like bread and medicine are zero-rated, the benefits do not reach ordinary Kenyans.
He explained that instead of lowering consumer prices, the current system allows manufacturers and producers to get rich through tax refunds. Under zero-rated VAT, businesses can claim refunds on the tax they pay on inputs used to produce those goods.
However, Kaluma argued that this system only helps companies and not the people who buy the products.
Kaluma proposed that all goods and services currently zero-rated should instead be made tax-exempt. In a tax-exempt system, consumers would still not pay VAT, but producers would also not be eligible for refunds. This would reduce the flow of public funds back to companies and instead lower prices for consumers directly.
“We have zero-rated many goods, including bread and medicine products but the intended benefits have never trickled down to the consumer! Instead, it is the bread factories and other producers getting richer through 16% VAT refunds,” the MP said.
Adding
“Let’s exempt all goods and services that are currently zero-rated and find a way by which the VAT refunds can instead go to the consumers.”
The lawmaker believes that this change will help ensure that Kenyans truly benefit from VAT relief on basic goods.
Finance Bill 2025
His comments come at a time when the Finance Bill 2025 is under discussion. The new bill appears to take a different approach from the widely criticised Finance Bill 2024.
Last year, the government had proposed to impose a 16% VAT on essential items like bread, cooking oil, sugar, potatoes, onions, table eggs, and even services such as bank transactions and mobile money transfers. The bill also included an eco-levy on items like diapers, sanitary towels, batteries, and mobile phones.
Those proposals sparked outrage across the country, with civil society groups, industry players, and the public taking to the streets in protest. The pressure forced President William Ruto’s administration to back down and withdraw the controversial plans.
Eventually, the administration decided to maintain the zero-rated status of basic food items and scrap the planned taxes on financial services and eco-sensitive products.
In contrast, the Finance Bill 2025 focuses more on green energy and supporting agriculture. The bill proposes VAT exemptions for electric bicycles and buses, helping Kenya transition to clean energy. It also gives tax relief on animal feed production inputs to support farmers.
However, the bill plans to remove VAT exemptions on goods used in affordable housing projects. This move suggests the government is trying to find new ways to fund its housing agenda without touching everyday consumer goods.
So far, key food items such as bread and eggs remain unaffected by the 2025 proposals, likely in response to last year’s backlash.
