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Ideas & Debate

Reason given for increasing kerosene tax not convincing

A woman buys kerosene
A woman buys kerosene at Majengo slums in Nyeri. FILE PHOTO | NMG 

The recent excise duty increase on kerosene was premature and justified on wrong premise. A policy and strategy has always existed to reduce domestic use of kerosene by “gradually’ raising kerosene taxes as the alternative cooking gas (LPG) became sufficiently available and affordable.

The policy objective is to eventually eliminate kerosene as a domestic fuel because indoor particulate emissions from kerosene burning are harmful to health. However, sufficient supplies of LPG should precede reduction of kerosene consumption through higher taxes.

The recent kerosene tax hike was justified on curbing fuels adulteration which is the mixing diesel and petrol with cheaper kerosene. Fuels adulteration is a collusive crime of which legal systems and penalties already exist to curb it. It is apparent that the lobby consisting of oil marketers and enforcement agencies pushed for the kerosene tax increase after failing to fully enforce existing laws on adulteration.

The recent kerosene tax hike fully addressed diesel adulteration, with petrol still at risk because Sh9.50 per litre tax differential still exists between kerosene and petrol. It will be unfortunate if another kerosene tax increase is implemented to sort out the remaining petrol adulteration.

If the ongoing stepped-up fight against economic crimes was given a chance, we would probably have sufficiently addressed adulteration crimes without having to prematurely hit the vulnerable kerosene users with higher taxes. Indeed, we have recently observed a rejuvenated fight against adulteration by both the Energy Regulatory Commission(ERC) and the Directorate of Criminal Investigation(DCI). This is a proof that existing laws can curb adulteration if rigorously implemented.

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The policy for low kerosene taxes was first introduced in 1980 as a safety net for low income households at a time when global prices had hit the roof. This is when the tax differentials between petrol, diesel, and kerosene were introduced.

Tactically, governments around the world usually raise petroleum taxes when global oil prices are coming down, not when they are going up. We are now in a cycle of escalating global prices which are already past $80 per barrel and these will soon further impact kerosene users.

Enough has not been done to create a critical mass in the supply of the alternative LPG to replace kerosene. Kenya currently consumes about 200,000 tonnes of LPG annually which is a constrained demand. If LPG was sufficiently available across Kenya, and at reasonable costs, we should today be consuming nearly 500,000 tonnes per year with potential to move to a million tonnes in another ten years.

Kenya promptly needs ample LPG imports and distribution infrastructure and regulations that permit and encourage private LPG investments and enterprise. Regulations should include ease of market entry, efficient open access infrastructure, and competitive imports sourcing through open tender systems. LPG is essentially a business driven by a critical mass to induce economies of scale and reduced unit costs and prices.

Kerosene and LPG are part of a domestic energy sub-sector which also includes charcoal, firewood, briquettes, electricity, solar, biogas, and bio-fuels. Various policies that guide these fuels are often in conflict and include safety net for low income households; climate change and forest-cover; emissions health impacts; and of course anti-adulteration.

These policies are domiciled in different departments and are applied without much cross-consultation.

What the country needs is an over-arching cross-cutting “domestic energy policy’ that correctly advises uniform application of all subsidiary policies.

This way, domestic energy investments shall be correctly informed and regulated, while protecting consumer interests.

In the meantime, we need to reduce use of kerosene because it is harmful to health, but there should be a corresponding capacity building for alternative LPG supply.

As LPG capacity increases then kerosene taxes should be gradually increased to compel users to convert to clean LPG. As LPG supply increases and use of kerosene reduces, adulteration will eventually disappear.

Further, as a proof of sincerity to the safety net policy, it is logical that all the revenues currently accruing from the recent kerosene tax hikes are ring-fenced and allocated to accelerate capacity for LPG supplies to the low income households that are using the expensive kerosene.

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