Bill exempts fuel from excise review, halves VAT to tame prices


An attendant at a fuel station in Nairobi. FILE PHOTO | NMG

Fuel will be exempted from the annual review of inflation tax while two levies charged on diesel and petrol will fall by half if Parliament adopts proposed changes to the law aimed at lowering pump prices.

The National Assembly committee on Finance and National Planning says fuel should be exempted from the annual adjustment and Value Added Tax (VAT) on petroleum products reduced from eight to four percent.

The proposals contained in the Petroleum Products’ (Taxes and Levies) (Amendment) Bill, 2021 will also slash the levy that motorists pay to support a fuel subsidy scheme from Sh5.40 per litre to Sh2.90.

The Bill set to be tabled in Parliament seeks to reduce the price of diesel, petrol and kerosene amid public uproar after pump prices hit historic highs in the monthly review ending tonight.

“The following taxes and levies charged on fuel be amended as follows, reduce the Petroleum Development Levy charged on super petrol and diesel from Sh5.40 to Sh2.90 and reduce VAT from eight percent to four percent,” reads the Bill.

In the lapsing montly review, petrol prices rose by Sh7.58 a to Sh134.72 in Nairobi while diesel jumped Sh7.94 to Sh115.6 a litre, triggering public outrage that prompted Parliament to start a review of the taxes on fuel.

VAT accounts for Sh9.98 for every litre of super petrol and Sh8.56 per litre of diesel, the second biggest tax item on fuel after excise duty and road maintenance.

Fuel is one of the more than 31 products including beer, juice and bottled water, that are subjected to inflation adjustment tax every year, a review that increases their prices.

Inflation adjustment this year would have increased the price of super petrol by Sh1.09, while diesel prices would jumped Sh0.566 per litre. But the High Court suspended the increase of excise duty following a public petition.

Proposed changes to the law will exempt petrol, diesel and kerosene from the excisable goods under Excise Duty Act of 2015.

Inflation adjustment tax was introduced in 2018 and is seen as a means of protecting the government’s spending power from erosion by rising cost of living and avoid seeking MPs’ nod for higher retail prices.