How pump prices will look after President Ruto’s 16pc VAT
Tuesday May 16 2023
Pump prices will nearly breach the Sh200 per litre mark if Parliament approves a proposal by President William Ruto’s administration to double Value Added Tax (VAT) on fuel in a plan that could make Kenya have the highest prices in the region.
An analysis by the Business Daily shows that a litre of Super will rise by Sh13.51 to Sh196.21 after the additional taxes while diesel will increase by Sh12.40 to Sh180.88 if lawmakers adopted the proposal in the Finance Bill to double VAT to 16 percent.
In total, it is projected that VAT collections will double to an estimated Sh128.98 billion annually or Sh10.7 billion per month. The collections, however, depend on fuel consumption and global prices of crude oil.
President William Ruto on Sunday defended the proposal to double VAT on fuel on the grounds that Kenyans pay smaller taxes compared to similar economies and that higher levies will provide the much-needed cash to fund development projects such as the building of roads.
“We are not overtaxing ourselves. But to balance it out, as we add eight percent on the same fuel, I have removed the Railway Development Levy (two percent) and Import Declaration Fee (3.5 percent),” Dr Ruto said on Sunday evening in a joint television interview.
Read: More pain at the pump as fuel prices hit a historic high
He said the government is targeting an extra Sh50 billion from the additional taxes.
“To further balance it out I have removed the eight percent VAT on gas and other taxes to try and even the budget.”
The anticipated increase in VAT collections from fuel will come at a cost to homes and businesses that will be grappling with a fresh rise in inflationary pressure.
Consumers are currently paying Sh182.70 per litre of Super, Sh168.40 for diesel while a litre of kerosene costs Sh161.13 — the highest in Kenya since the State started regulating pump prices.
A scrutiny of the Finance Bill, 2023 shows that Liquefied Petroleum Gas (LPG) is the only fuel from where Import Declaration Fee (IDL) and Railway Development Levy (RDL) will be removed.
Currently, the Kenya Revenue Authority (KRA) is raising an estimated Sh64.5 billion from VAT on diesel, Super and kerosene based on the official monthly consumption data from the Energy and Petroleum Regulatory Authority.
The doubling of VAT will see Kenya’s pump prices pull further clear from the rest of the region, adding pain to consumers given that fuel costs have a significant impact on the cost of goods and services in Kenya’s diesel-run economy.
Today, Kenya has the third costliest fuel in East Africa behind Uganda and Rwanda.
A litre of Super and diesel is going for $1.36 and $1.35 respectively in Rwanda while in Uganda, a litre of Super and diesel is retailing at $1.34.
Kenyans are struggling with a high cost of living and this will worsen were Parliament to approve the proposal to double VAT.
The costs of energy and transport have a significant weighting in the basket of goods and services that is used to measure inflation in the country.
Producers of services such as electricity and manufactured goods are also expected to factor in the higher cost of petroleum.
Inflation— the measure of the cost of living— eased to 7.9 percent last month from 9.2 percent in March.
The anticipated pump prices are based on the current global costs of crude for last month which was $83.36 per barrel.
An increase in the pricing of crude in the global market may push the local pump prices higher than the Sh196-mark.
Global prices of crude have been rising from $80.11 per barrel in February and leading US investment bank, JP Morgan, says the prices will keep rising.
JP Morgan in its outlook last month forecasted that prices will keep rising due to the move by oil–producing nations to cut output by around 1.16 million barrels per day.
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Saudi Arabia, a leading oil producer and member of the Organization of the Petroleum Exporting Countries (Opec) defended the cuts as precautionary measures aimed at supporting the stability of the oil market.