Kerosene tax increase looms as MPs fight petrol dilution

Parliament has recommended a steep increase in kerosene taxes to eliminate its use in the adulteration of petroleum. The move is bound to hurt poor households that rely on kerosene to cook food and light up their homes.

The punitive move was taken after the National Assembly’s Energy committee learnt that Kenya has lost 100 per cent of the Rwandan petroleum export market and 30 per cent of the Ugandan market because of rampant adulteration.

The committee said Kenya’s loss of its share of the fuel market in the neighbouring countries to Tanzania is mainly the result of pricing differences between petroleum and kerosene or diesel. Tanzania has same prices for the three commodities.

“The pricing is because of the difference in fuel taxes for diesel and kerosene and we should therefore consider reviewing it,” Jackson Kiptanui, the vice chair of the Energy committee, told the Budget Committee, while presenting the 2016/17 budget report for the Ministry of Energy and
Petroleum.

Mr Kiptanui said Kenya needed to make prices of kerosene and diesel at par to ensure that petroleum dealers don’t make any gains by mixing the two.

The Energy Regulatory Commission (ERC) on May 14, 2016 set the prices of petroleum products, pushing up the price of a litre of kerosene by Sh3.02 to Sh46.98 while diesel rose to Sh70.37 up from Sh66.23 last month.

The pump price differences arise from the fact that petrol is charged excise duty of Sh19.89 per litre, diesel Sh8.24, while kerosene is zero-rated.

Diesel and petrol also attract a road levy charge of Sh9 a litre that does not apply to kerosene.

Low priced kerosene, though good for the millions of poor households that use it for heating and lighting, has become the means by which unscrupulous traders adulterate petroleum to increase their profit margins.

The ERC late last year reintroduced tax on kerosene after President Uhuru Kenyatta assented to the Excise Duty Bill — which increased levies on items like water, beer, cigarettes, juices and used cars.

The move, however, fell short of demands by the Petroleum Institute of East Africa (PIEA) — the oil dealers’ lobby — to remove kerosene subsidy because of its use to adulterate the more expensive petrol and diesel.

READ: ERC releases kit to check fuel mixed with kerosene at oil depots

PIEA has been lobbying the Treasury to increase kerosene taxes to the level of petroleum, but the government has been hesitant because of its possible impact on poor households.

Parliament’s bid to have kerosene and diesel taxes reviewed appears to be in line with the oil dealers’ lobby who feel the Sh5.75 kerosene tax is not enough to bridge the gap between it and diesel or petrol.

“If the price of diesel and kerosene are the same, no petroleum dealer will be tempted to mix the two,” said Mr Kiptanui. The total value of Kenya’s export of petroleum products rose 12 per cent to 59.5 billion in 2015, while that of re-exports rose by 12.3 per cent to Sh59.5 billion, according to the 2016 Economy Survey. 

Kenya’s loss of the Rwandan market and a large portion of the Ugandan market to fuel adulteration means East Africa’s largest economy faces a bleak future with no growth in petroleum exports.

Petroleum adulteration is the act of mixing diesel with kerosene or super petrol with kerosene to take advantage of the lower taxes on kerosene.

It has in the past forced ERC to provide petroleum retailers with special self-test kits, dubbed lateral flow devices, in an effort to tame rogue traders.

The energy regulator in March cracked down on a number of petroleum companies whose retail stations were found selling adulterated fuel.

More than 27 petrol stations were shut down after they were found selling adulterated petroleum or diverting fuel meant for export to the local market.

READ: Vivo ends contracts of 4 service station dealers accused of adulterating fuel

Seven station were shut down in Meru, five in Kakamega. Dealers in Kericho, Kirinyaga, Tharaka Nithi, Mombasa, Migori, Siaya, Murang’a, Bomet, Kisumu and Kisii counties also suffered a similar fate.

The stations affected were among the 1,493 petroleum outlets whose products were tested for quality.

The regulator slapped fines on the mostly small dealers, for diverting fuel meant for neighbouring landlocked countries for sale in the Kenyan market. Petroleum meant for export is not taxed locally.

The taxman has been losing revenue as a result of diversion of export products into the local market, but vehicle owners have suffered the most damage to their car engines arising from use of petrol mixed with other additives.

The Mutava Musyimi-led committee meets this morning to prepare its final report on the 2016/17 budget estimates ahead of tabling Tuesday when Parliament reconvenes from a month-long recess.

Treasury secretary Henry Rotich will present the Budget statement on Thursday.