MPs propose to slash high cost of fuel by Ksh30

Wednesday, October 13th, 2021 00:00 | By
Pump price. Photo/Courtesy

Mercy Mwai and Anthony Mwangi

Members of Parliament yesterday recommended huge cuts on taxes and levies imposed on petroleum products, a move that could lead to the cost of fuel dropping to as low as Sh100 from the current Sh134.

Lawmakers proposed a reduction of the Petroleum Development Levy (PDL) charged on Super Petrol and Diesel from Sh5.40 to Sh2.90.

Finance and Planning Committee members blamed landing costs, taxes and levies for the high prices of petrol.

The legislators argued that the landing costs account for more than 45 per cent while taxes and levies account for more than 35 per cent.

“Committee further observed that landing costs have been increasing gradually since early 2021, due to rise in the international crude oil prices which are expected to rise until July 2022, when it is projected prices will begin decelerating,” reads a report of the committee chaired by Homa Bay Woman Rep Gladys Wanga.

The report stated: “The Committee also observed that there seems to be double taxation with respect to the eight per cent Value Added Tax (VAT) on fuel since it is calculated on the final retail price which includes all the other fuel taxes and levies.  There is a need for harmonisation of the VAT.”

Policy perspective

Experts immediately welcomed the recommendations with Francis Kamau, a partner at Ernest &Young exclaiming: “Yes I agree, this is great news to Kenyans.

The problem will be implementation by the petrol stations... this requires to be implemented from a policy perspective, amendment of legal instruments (tax law) and most importantly the regulator who should set the limits and boundaries.” 

“By our own calculations, we see the price settling between Sh100 to Sh108 because of tax aspects... ,” he explained.

Speaking to the People Daily, University of Nairobi economics lecturer Samuel Nyandemo said the move is welcome but warned the Treasury will look for other ways to recover the lost taxes.

“It is a sigh of relief for Kenyans but they should prepare for tough times as the Treasury seeks more avenues to recover the money lost,” he said.

In a report tabled in the National Assembly, the committee proposed that the Ministry of Petroleum and Mining and the Energy and Petroleum Regulatory Authority, commence the process of reviewing the current pricing formula with a view to ensuring all the parameters in the current formula can be accounted for and to determine whether the Oil Marketing Companies (OMCs) margins are justifiable.

Supplementary estimates

In the report, the committee recommended the revocation of the Petroleum Development Levy Order (PDL), 2020 and the amendment of the Petroleum Development Fund Act, 1991 by providing the amount that shall be charged to the PDL per litre of Super Petrol and Diesel.

MPs also proposed amendments to the VAT Act, to reduce VAT from eight per cent to four per cent to reflect the change in the tax rate for petroleum products.

“The National Treasury should prepare Supplementary estimates for consideration, which shall reflect the reduction in revenue occasioned by the amendment,” reads the report.

Wanga-led committee further wants the VAT on Liquid Purified Gas (LPG) cut from 16 per cent to 8 per cent. Currently, a 13-kilogramme cylinder of LPG has averaged at Sh2,700 while the six-kilogramme model is averaging Sh1,300.

On oil marketers, the MPs proposed that their gross margins be reduced by Sh3 from Sh12 per litre to Sh9 per litre by amending the Energy (Petroleum Pricing) regulations, 2010.

They also proposed the establishment of a formula for distributing money from the fund to oil marketing companies.

The lawmakers also proposed a waiver on inflation adjustment on fuel for FY2021/22 by amending the Excise Duty Act, 2015 as well as recommending the adjustment of fuel biennially, which shall be determined by the National Assembly.

Committee also wants the National Treasury upon adoption of the report, to start the process of reverting the Sh18.1 billion which was diverted from the PDL Fund for purposes of stabilisation of fuel prices.

The committee regretted that despite Sh18.1 billion being set aside for fuel stabilisation, the Ministry of Petroleum was only allocated additional Sh5 billion for fuel price stabilisation in the months of July to September 2021, while total amount utilised for stabilisation as of September 2021 was Sh6.6 billion.

Fuel pricing formula should be amended to make demurrage a standalone factor of calculation of the price of fuel, as opposed to the current scenario where it is factored in the landing costs, the committee said.

The demurrage costs are currently included in the fuel price formula since the country has only one terminal for offloading oil that is the Kipevu Oil Terminal I (KOT), which can only accommodate one ship at any given time.

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