EAC harmonised tax threatens to scuttle inflation rate gains
By Mumo Kimwele, July 9, 2024Central Bank of Kenya (CBK) says Kenya’s inflation rate for June 2024 declined significantly, reaching its lowest point since October 2020 on the cost of food.
During that period, the overall inflation rate decreased to 4.6 per cent, down from 5.0 per cent in May, in a dip primarily driven by falling prices of select non-vegetable items and electricity, offering some relief to Kenyan consumers.
Food inflation dropped considerably, from 6.2 per cent in May to 5.6 per cent in June, as food items became more affordable on the back of good rains. This resulted in decreased prices in essential food commodities, which eased the financial burden on households.
Despite challenges such as adverse weather conditions and supply chain disruptions, the food sector’s inflation reduction signifies a positive trend for the economy.
Fuel market
Fuel inflation also moderated, decreasing from 6.8 per cent in May to 6.4 per cent in June. The decline in fuel prices can be attributed to global oil price trends and effective governmental policies aimed at stabilising the fuel market.
Lower fuel prices not only reduce transportation costs but also have a cascading effect on the overall cost of goods and services.
While this overall decline in inflation is a positive indicator for Kenya’s economy, it comes at a time when businesses are preparing for unforeseen effects of the East African Community (EAC) harmonised tax which Finance Ministers earlier agreed on.
According to the gazette notice dated June 30 and seen by the Business Hub, the approved measures on import duty in the EAC Common External Tariff will affect partner states, with Kenya most affected following the recent withdrawal of its controversial Finance Bill 2024.
According to John Kalisa (pictured), the East African Business Council CEO it may have a distortionary effect on business. “It will have an impact on revenues, as it implies that Kenya will be applying a different rate from that of other partners,” he noted
The East African Community has prioritised the harmonisation of taxation regimes of its member states to promote co-ordination of the taxation systems of the member states for the purpose of preventing any national tax measures that could have a negative effect on the functioning of the planned Common Market arrangement.