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Rise in consumer prices from VAT changes

04 September 2013, 17:00

Nairobi -  Kenyans are feeling the pinch of consumer prices this month after lawmakers widened the bracket of goods subject to value-added tax.

MPs increased the number of items under the value added tax (VAT) category as the government seeks to raise revenues in the face of a 7.9 percent budget deficit for this fiscal year.

The new tax measures took effect on Monday.

"The adjustment in prices will be one-off for those items which were not VAT-able. Going forward all prices should remain stable," said Finance Secretary Henry Rotich.

Kenya's year-on-year inflation rate rose in August to 6.67 percent, from 6.02 percent the previous month, but remained within the government's broader target range of 2.5-7.5 percent.

Ragnar Gudmundsson, the International Monetary Fund's representative in Kenya, said that the inflation outlook for the country would remain benign on the back of appropriate monetary policy by the central bank.

The bank held its key lending rate at 8.50 percent on Tuesday, in line with market expectation, saying inflation was within an acceptable margin of its medium term target.

"The outlook is relatively encouraging in terms of impact of rains on agricultural production and the international prices of commodities," Gudmundsson said.

In July, President Uhuru Kenyatta said maize flour and bread would remain zero-rated, after plans to tax the two elicited protests.

Most luxury goods are already subject to VAT, as are alcohol, cigarettes and mobile phone air time.

Rotich asked businesses to limit any price rises to the VAT rate.

"I would really also want to call to businessmen not to take advantage of this time to rise prices beyond what the rate at which all these other items are subject," he said.

- Reuters

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