Fuel prices to rise next week on the back of import tax
A worker at a petrol station in Eldoret town adjusts fuel prices on a billboard in April 15, 2013. The Electricity Regulatory Commission is expected to review fuel prices on Sunday. The cost of petroleum products is set to go up as consumers grapple with a general rise in cost of goods brought by the Railway Development Levy. FILE
What you need to know:
The government on July 1 started collecting the 1.5 per cent duty on all imports, including fuel, motor vehicles, medicine, second-hand clothing and edible oils in a move that is set to erode consumers’ purchasing power.
Motorists, households, manufacturers, and power producers will see the cost of kerosene, diesel, and petrol rise by between Sh1.2 and Sh1.8 per litre from Monday, going by current pump prices as the new levy is factored into the next petroleum price review.
Collection of the tax has been met with controversy with importers saying inadequate capacity of KRA and port officials was causing delays, ultimately raising storage costs.
The cost of petroleum products is set to go up by nearly Sh2 per litre from next week as consumers grapple with a general rise in cost of goods brought by the Railway Development Levy.
The government on July 1 started collecting the 1.5 per cent duty on all imports, including fuel, motor vehicles, medicine, second-hand clothing and edible oils in a move that is set to erode consumers’ purchasing power.
“Kenya Revenue Authority is collecting the 1.5 per cent duty on fuel discharges from July 1. It is a new cost that will be reflected in fuel prices going forward,” said Martin Kimani, the supply manager at KenolKobil.
The blanket tax has roped in raw materials that were previously imported by manufacturers at zero duty, with the industrialists expected to pass on part of the additional costs to consumers.
Motorists, households, manufacturers, and power producers will see the cost of kerosene, diesel, and petrol rise by between Sh1.2 and Sh1.8 per litre from Monday, going by current pump prices as the new levy is factored into the next petroleum price review.
Mr Kimani said oil marketers would ask the Energy Regulatory Commission (ERC) to include the additional charge in the price review set to be announced on Sunday.
ERC director-general Kaburu Mwirichia was non-committal on how the energy sector regulator would treat the new charge in the upcoming and subsequent price reviews.
“We need to clarify the implication of the new duty on fuel price costs. If the duty applies [to petroleum products] then it shall be included in the price reviews,” Mr Mwirichia said.
Two ships have discharged petroleum products at the port of Mombasa since the new levy came into force.
Super petrol will record the highest price increment based on the commodity’s relatively high value compared to diesel and kerosene. In Nairobi, the price of super petrol, diesel, and kerosene is likely to rise by Sh1.6, Sh1.4 and Sh1.2 per litre before other factors like crude oil prices, foreign exchange rate and logistics are taken into consideration.
Residents of remote areas — where transport costs inflate pump prices — will bear the heaviest burden from the new levy.
In Mandera, for instance, super petrol and kerosene will rise by Sh1.8 and Sh1.4 respectively, making it one of the most expensive places to buy the products.
Fuel prices receded marginally last month but the duty is set to drive up prices as well as inflation which stood at 4.9 per cent last month, up from 4 per cent in May. Petroleum products account for 25 per cent of the value of Kenya’s annual imports, with the new charge on fuel set to earn the taxman at least Sh3.5 billion annually.
Higher fuel prices will have negative ramifications on household budgets given the importance of fuel and electricity in powering homes, motor vehicles, and industries.
In addition to higher fuel prices purchased directly, consumers will also pay more for manufactured goods and electricity that are partly produced using diesel oil.
Treasury secretary Henry Rotich has not yet published any exemption to the railway development tax which he said would apply to all imports.
Companies and individuals seeking to buy new or used motor vehicles will now pay more for the units, with those purchasing expensive models bearing the heaviest burden of the tax.
Used saloon cars are being slapped with an additional duty starting from about Sh7,000 while buyers of new high-end cars will attract an additional cost of up to Sh250,000.
The tax will now apply to imports of vehicle parts for local assembly, raising the cost of pick-ups, buses, and light commercial trucks put together at the plants.
Unlike fully built vehicles, imports of completely knocked down units (CKD) enjoy exemption from the 25 per cent import duty but will now be subject to the 1.5 per cent special levy.
This is expected to further erode the attractiveness of local assemblers, slowing down creation of new factory jobs.
General Motors East Africa, for instance, last year stopped assembling its Isuzu pick-ups in Kenya and outsourced the job to South Africa which it described as offering lower vehicle prices from better economies of scale.
Manufacturers are also grappling with the imposition of the new tax on other raw materials that were previously exempt from import duty. These include unprocessed material, machinery, and equipment used in the manufacture of goods.
Industrialists say this will raise the cost of goods, piling pressure on their margins and eroding the competitiveness of locally made products against low-cost producers in Africa and Asia.
“Some manufacturers will absorb the additional costs and others will pass them to consumers. The bottom line is that the country is losing its competitiveness,” said Pradeep Paunrana, the CEO of ARM Cement.
Retailers, including dealers in home appliances, electronics, new and second-hand clothes, are also set to reflect the new tax on their price tags.
The levy, which is set to generate at least Sh20 billion annually, is intended to upgrade the ageing railway infrastructure and improve transportation of goods and people.
Proceeds from the tax will be added to the Sh22 billion that the Treasury has set aside for construction of a two-track standard gauge railway line from Mombasa to Kisumu.
Mr Rotich said the project is expected to be completed over the next three years and will reduce the cost of freight from Mombasa to Kisumu by as much as 79 per cent to Sh30,000 per container.
Collection of the tax has been met with controversy with importers saying inadequate capacity of KRA and port officials was causing delays, ultimately raising storage costs.
The Kenya International Freight & Warehousing Association said in a statement that the officials have started conducting full verification of all imports without raising the requisite manpower to fast-track the process.
