Taxing kerosene akin to penalising poor households for errors by others

Last week, a journalist asked me what I thought of the planned re-introduction of taxes on kerosene. I replied that I considered it uninformed and one-sided and it contradicts other government policies while the timing is politically unwise.

Domestic fuels and energy include cooking gas (LPG), kerosene, electricity, charcoal, firewood, solar and in some cases, biogas. All these are inter-related in that if you cannot afford one or it’s unavailable, you switch to the other. Key words – affordability and availability.

There are a number of policies, some written and others implied, that directly or indirectly influence which household energy to emphasise or promote.

Key among them is the environmental push to conserve our forest cover by converting most of the charcoal and firewood users to non-wood fuels.

This policy advocates increased use of LPG, biogas and solar. It also supports efficient use of wood-based fuels where alternatives do not exist.

Another policy is to “gradually” reduce use of kerosene for domestic use because the fuel has negative health impacts when used indoors. An implied policy is to ensure that poor households have access to affordable energy.

Fiscal policies target taxing traded forms of energy (electricity, LPG, kerosene). All these policies are domiciled in different ministries, which implies absence of central coordination for household energy.

Kerosene is the domestic fuel for cooking and lighting mainly used by rural and peri-urban low income households. Until June 1979, taxes on petrol, diesel and kerosene in Kenya were equal.

Then global oil prices nearly doubled and the government lowered kerosene taxes and loaded them onto the other products as a social safety net for the poor.

In 2010, Finance minister Uhuru Kenyatta removed all taxes on kerosene in response to even higher global oil prices.

The recent push, mainly by oil marketers, to reinstate taxes on kerosene is premature and mostly self-serving. Re-introducing taxes on kerosene means the lower income households will be pushed to use more charcoal and firewood, which harms the forest cover. Users will barely afford the policy-preferred LPG alternative.

Various government strategies to make LPG affordable have not succeeded in delivering the threshold price that can potentially convert poorer households to this cleaner energy source.

Kerosene has negative health impacts and its trade has other complications. It can blend up to about 10 per cent with diesel and petrol and still meet basic specs for the two products.

However, it reduces motor fuels performance and can damage vehicle parts. Further, presence of zero-taxed kerosene in adulterated blends effectively reduces tax revenues for the Kenya Revenue Authority (KRA).

Fuel adulteration is a criminal activity that makes illicit margins. Laws and regulations involving KRA, the Energy Regulatory Commission and the Kenya Bureau of Standards are in place to curb adulteration. However, where there is criminal profiteering, enforcement often becomes a nightmare because of corruption.

At least one prominent oil marketer has for the past 10 years instituted products dispatch procedures that nearly guarantee pure unadulterated fuels at their retail stations.

I fuel at their branded stations because I am mostly assured of fuel quality. If one marketer can do it, others too can institute effective measures to augment quality assurance.

Kerosene is essentially an “innocent” product until failure to enforce regulations and absence of effective quality systems by marketers “criminalises” it.

When we have made LPG sufficiently affordable for the poor, then we can systematically reduce kerosene use, not because of adulteration but because it is a health hazard for indoor users.

In 2005, the East African Community decided that member states should remove all excise and VAT taxes on LPG to support forest conservation.

The Kenya Government implemented the policy and withdrew VAT in June that year. However, come 2013, Treasury secretary Henry Rotich re-introduced VAT on LPG.

This is a case of policy inconsistency. Rwanda removed all taxes on LPG and went further to make cylinders and related appliances tax-free.

Various government studies, strategies and projects to make LPG affordable and available have not translated into cheaper LPG. At current prices, LPG is not an obvious alternative to kerosene, charcoal and firewood.

There was also a policy (or intention) to commercialise charcoal as a sustainable fuel. Formal charcoal business was meant to create many jobs while generating tax revenues for the exchequer.

We should not rush to re-introduce taxes on kerosene before we have affordable alternatives for lower income households. Penalising poor kerosene users with higher taxes, for errors of commission and omission elsewhere, is neither a correct nor a fair solution.

Mr Wachira is director, Petroleum Focus Consultants. [email protected]