VAT and its effects

When the new VAT rates were introduced in January, many thought that the 5-percent VAT on poultry, fresh milk and eggs would result in a market restructuring, e.g. consumer demand will increase for these products, product prices will drop. An April report by the Central Statistical Office (KSH) revealed that food prices increased by 1.9 percent on average, but the price of poultry decreased by 15.7 percent and eggs cost 3.4 percent less. It seems that the lower VAT rate pushes prices down in the given segment, but the growing prices of other products mean that in total consumers don’t pay less at the grocery store checkout than before the VAT reduction. Lower VAT is a good thing, but consumers won’t have more money left in their pocket because of it, and in the short term consumer demand for products doesn’t really increase. All in all, lowering the VAT isn’t enough to control product prices. The VAT can only be a supplementary tool in a well-planned retail trade policy. //