Government now takes up to Sh79 in tax for every litre of fuel

September 20, 2023 Editor 0 Comments Kenya, Oil & Gas

Consumers are now paying up to Sh79 as taxes per litre of fuel, underlining the impact of the charges in inflating petroleum prices that will see the Kenya Revenue Authority (KRA) collect Sh29.2 billion per month from diesel, petrol and kerosene sales.

The latest price review shows that Sh79.31 goes to taxes and levies on every litre of petrol followed by Sh67.35 a litre of diesel — the most used fuel in the Kenyan economy. Taxes and levies account for Sh62.81 for every litre of kerosene.

The higher composition of taxes and levies will see the KRA raise an estimated Sh5.79 billion more per month from the three fuels from the Sh23.38 billion raised per month since September last year before the doubling of value-added tax (VAT) to 16 percent.

Taxes and levies as a component of the price of a litre of fuel have significantly grown on the back of the increase in the landed cost of the commodity and the doubling of VAT two months ago.

In the monthly pricing review to October 14 last year, taxes and levies accounted for Sh64.14 per litre of super petrol, Sh53.39 for every litre of diesel and Sh46.81 per litre of kerosene.

A litre of diesel jumped by Sh21.32 to Sh200.99 in Nairobi in the latest price review while that of super petrol rose by Sh13.96 to Sh211.64. Kerosene jumped by the highest margin of Sh33.13 a litre to 202.61 effective Friday, triggering public uproar.

President William Ruto has in the past said that the government does not overtax fuel, despite the growing public anger over the high prices and the ripple effects on the cost of living.

“We are not overtaxing ourselves,” Dr Ruto said early this year when he argued for doubling of VAT to 16 percent from July 1.

The taxes, some of which are levied in percentage points, help to drive up final prices as the cost of the products rise in the international markets.

Excise tax is the biggest tax per litre on fuel followed by VAT. The levies are road maintenance levy, petroleum development levy, import declaration fee, petroleum regulatory levy, railway development levy, anti-adulteration levy and merchant shipping levy.

Parliament approved the doubling of VAT through the Finance Act 2023, setting off high prices that shot even higher after the government discontinued stabilisation of fuel to cushion consumers.

Dr Ruto argued that the doubling of VAT will be balanced by the removal of the railway development levy (two percent) and import declaration fee (3.5 percent).

The KRA raised Sh27.96 billion in taxes and levies last month and Sh23.38 billion in September last year, based on the petroleum consumption figures from the Energy and Petroleum Regulatory Authority (Epra).

Parliament in 2021 failed to adopt a report by its Finance committee to cut VAT on petroleum products from the then eight percent to four percent.

The committee had also recommended a reduction of the petroleum development levy from Sh5.40 to Sh2.50 per litre.

The Treasury has over the years resisted attempts by lawmakers to reduce the levies and taxes on fuel products, underlining their importance in the KRA’s tax collections.

Doubling of the VAT from July 1 this year marked the start of a surge in pump prices and increased collections by the taxman.

Kenya, like other economies that do not produce oil, is grappling with a spike in global costs of crude, a situation made worse by the series of taxes and a decision to eliminate the stabilisation fund, amid pressure from the International Monetary Fund (IMF).

Prices of refined fuel have been on a surge in the past three months, driven by the closure of several refineries, increased demand from Europe ahead of the winter season and production cuts by major producers such as Saudi Arabia.

The IMF —one of Kenya’s single biggest financing partners— also got its way after the government bowed to pressure and rejected calls to stabilise pump prices to cushion Kenyans.

The Bretton Woods institution in July last year pushed Kenya to drop the fuel stabilisation scheme, saying that it had continually disrupted budgetary planning besides distorting market dynamics.

The Treasury last week disclosed that excise duty on fuel will be revised upwards by April next year as part of conditions from the IMF under a financing deal in what will burden consumers further.

The draft Medium-Term Revenue Strategy (MTRS) for the period between June 2024 and June 2027 shows the excise duty on petroleum products will be reviewed to “address the negative externalities, or negative effects, of consuming these fuels”.

“Going forward, possible options include the introduction of a carbon tax or increasing the excise tax on fossil fuels to better capture the externalities associated with fossil fuel consumption in line with the recommendations from the IMF climate policy diagnostic mission,” the Treasury says in the MTRS.

Source:www.businessdailyafrica.com

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