Address the ripple effects of costly fuel

Wednesday, October 4th, 2023 01:00 | By
Fuel pump. PHOTO/Courtesy
Fuel pump. PHOTO/Print

The soaring cost of fuel in the country has led to significant changes among its citizens, potentially impacting the nation’s economic growth, and there is a need to cushion the economy from the knock-on effects.

Government data highlights a sharp decline in fuel consumption, reaching the lowest levels in over five years, as consumers grapple with alternatives to cushion themselves.

Between January and June, super petrol consumption dropped by five per cent, from 1.074 billion litres to 1.01 billion litres, while diesel consumption fell by four per cent, from 1.36 billion litres to 1.31 billion litres during the same period.

This decline in fuel consumption is expected to affect the country’s Gross Domestic Product (GDP) since fuel consumption is a significant economic driver.

Higher fuel prices not only mean increased costs for individuals at the pump but also have broader economic implications. Conversely, lower gas prices make it more cost-effective for households and businesses to fill their tanks, benefiting transportation-focused industries like airlines and trucking but negatively impacting the domestic oil sector.

Taxes play a substantial role in Kenya’s high fuel prices, with the taxman collecting up to Sh80 in taxes per litre of fuel.

These taxes and levies represent a significant portion of the fuel price, with Sh79.31 for every liter of petrol, Sh67.35 for diesel, and Sh62.81 for kerosene.

While the increased tax composition is expected to boost the Kenya Revenue Authority’s (KRA) monthly revenue collection, raising an estimated Sh5.79 billion more per month from taxing the three fuels, what are the opportunity costs? (What the economy has to give up by taxation in terms of other goods or services).

Therefore, as the cost of fuel continues to rise globally, there is an urgent need for a conversation on how to stimulate economic growth despite these challenges.

Finding ways to mitigate the impact of high fuel costs on Kenyan citizens, businesses, and the overall economy is crucial to addressing the ripple effects of expensive fuel which will be here for a long time.

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