Fuel: State faces renewed pressure to reduce taxes

Tuesday, April 5th, 2022 12:12 | By
PHOTO/Njenga Kung’u

As Kenyans stare at a possible full-blown fuel crisis amid costly basic commodities, the National Treasury is under pressure to address the high cost of living ahead of the budget reading on Thursday.

The development comes even as cumulative taxes and levies on fuel continue to hurt consumers, a situation analysts say is being worsened by volatility created by the Russia-Ukraine war which has seen oil marketers seek higher Kenya Revenue Authority collects taxes and levies of about Sh59 for every litre of super petrol and Sh47 for diesel which is taken into fuel pricing. FILE margins.

PKF Consulting says the fuel subsidy which attempted to stabilise prices for four months to mid-March has weakened, calling upon the government to review existing taxes that account for more than 50 per cent of retail prices.

“These taxes have a huge bearing on the pricing of these (petroleum) products hence the need to reduce and lower the applicable taxes significantly to protect the Kenyan economy from an imminent collapse,” said Michael Mburugu, a regional tax expert at PKF Limited.

High pump prices Although the landing cost of petrol is about Sh78, various taxes and charges push the price to almost double.

Kenya Revenue Authority (KRA) collects taxes and levies of about Sh59 for every litre of super petrol and Sh47 for diesel which is taken into fuel pricing. In 2021, Parliament approved the Petroleum Products’ (Taxes and Levies) (Amendment) Bill, which sought to reduce the taxes imposed on petroleum products that have led to high pump prices.

The Bill, if passed, will, however, sabotage efforts by Treasury and KRA to cut the budget deficit by increasing taxes across major sectors. The biggest chunk of taxes and levies arising from the excise duty with a litre of petrol and diesel attracting Sh21.95 and Sh11.37 duty, respectively.

If it were not for an active court injunction, the excise duty would have been adjusted upwards by 4.97 per cent from October 2021 to reflect the average annual inflation. Other taxes include the petroleum development levy (PDL), import declaration fee, and railway development levy.

PDL currently charges Sh5.4 per litre on petrol and Sh2.9 on diesel. Yet, despite collecting PDL that funds the fuel subsidy, the government is still struggling to compensate oil marketing companies (OMCs) for the high cuts in their margins. This has caused the current oil shortage as OMCs hoard their products in protest over the delay of Sh13 million disbursement since January.

The budget and Appropriation Committee (BAC) has already approved the allocation of Sh10 billion to the fuel subsidy scheme to ease the pressure on households. Blame games The surging fuel prices saw the government negotiate with the oil majors over the weekend to end the fuel crisis but with the OMCs holding their ground, households will continue to feel the wrath of the blame games.

Kenya Pipeline Company (KPC) which is mandated to ensure a steady fuel supply, stated on Saturday that the country has enough fuel stock totalling 69 million litres of petrol and 94 million litres of diesel. RIPPLE EFFECT Cost of energy, basic food commodities and transport significantly eat up a bigger share of the home budget, especially among low-income households. The high cost of petroleum products has a high ripple effect on the cost of foodstuff.

More on Business