Just a stone-throw away from the Aga Khan University Hospital in Nairobi, customers spend hours walking the narrow lanes of the city council's Hawkers' market, checking out the prices of different varieties of rice. The assortment on offer is displayed on 2kg tins with rate cards.

"Prices are high. Rice is a luxury," says a woman carrying a basketful.

"They don't bargain any more because we won't bring down the prices," says Mr Manase Mburu, a kiosk owner, who said he inherited the rice business from his father. He sells a kilogramme of top variety rice at over Sh230 up from Sh200.

Before Finance Minister Amos Kimunya read the budget, Kenyans, hurt by rising food inflation, had lobbied him to take measures to reduce the cost of living. He intervened and zero rated Value Added Tax (VAT) on bread and rice. Kenyans expected prices to fall overnight but several days later it has not happened.

A cross section of shoppers interviewed at the Hawkers market complained of high prices, saying their expectations of lower prices had not been met although the budget had zero-rated the basic commodities. "Life has not improved. Everything is still expensive," said a woman who identified herself only as Shantilal.

"Customers are now going for cheaper varieties of rice," says Mr Mburu.

Mr Alex Muriuki, a tax expert with financial consultancy firm Deloitte, says before the budget speech, manufacturers, producers and packers of bread and rice were not allowed to claim VAT on the inputs used, passing the cost to consumers.

"In a zero rated situation, producers are in a position to claim refund for VAT charged on inputs but the process of getting the refund is strenuous ...it may not even be worthwhile as it will reduce the cost of your products as you await the refunds" says Mr Muriuki. This could explain why retailers and manufacturers have not adjusted prices downwards.

The price reductions of bread and rice will depend on how fast the Kenya Revenue Authority draws guidelines on how to file the refund claims.

According to the Finance Bill 2008, the effective date for applying the zero rated VAT is July 1. Analysts say that as it stands now manufacturers are not under any obligation to immediately bring down the costs.

"We wish to inform the public that significant price reduction will only start to be felt after July 1" said Mr Vimal Shah, the vice chairman of the Kenya Association of Manufacturers (KAM). "We take note that some manufacturers have taken it upon themselves to extend goodwill to the public by reducing the prices of both commodities earlier than anticipated."

Bread maker Broadways says they are among those who have reduced prices ahead of the effective date of application of the zero rated VAT.

The managing director, Mr Bimal Shah, says they reduced the price of a 400gm white sliced loaf of bread to Sh31 from Sh35.

"We are ready to adjust prices as soon as we receive the new price guidelines from the manufacturers" said Mr Thiagarajan Ramamurthy, the director of operations of retail chain Nakumatt supermarkets.

"Prices of bread and rice will go down by about 15 per cent when the zero rated VAT is effected" says Mr Francis Maswili, the general manager of Naivas Supermarket.

The past few months have seen a spirited surge in the price of bread and wheat flour products. In March a 400 gramme of bread was selling at Sh28, rising to Sh35 by June, which bakers attributed to escalating prices of wheat flour. Global prices are also pushing the prices up.

Kenya produces 300,000 tonnes of wheat grain against a demand of 900,000. The government in February gazetted a legal notice giving 12 millers and importers a chance to import 52,149 tonnes.

The Agriculture ministry last month invited tenders from millers and importers to import 17,383 tonnes of duty free wheat flour from Egypt and Mauritius.

Wheat sourced from outside Egypt and Mauritius will attract 10 per cent duty down from 35 per cent a reduction which will be effective on July 1, meaning that only shipment coming after will be affected. But Cereal Millers Association chairman Diamond Lalji is promising Kenyans reduced prices once the new imports arrive.

"All benefits given to us by the government will be passed onto the consumers penny by penny. Prices could go down by 15 per cent," he said.

"At the moment, millers are still holding huge stocks of wheat grain imported earlier. We are asking the minister to consider a refund of 25 per cent duty on current stocks so that millers can pass it on immediately to consumers" he said. "Without this, it is not possible to reduce prices before depletion of stocks of wheat grain imported at 35 per cent duty and the shipment of new stocks at the new duty rate of 10 per cent after July 1."

"While the government has moved to bring down prices of essential commodities through tax reduction measures, the prices of other inputs such as fuel and electricity continue to escalate and will have implications on future pricing of goods," said Mr Vimal Shah, who is also the CEO of Bidco, the makers of vegetable cooking oil.