Consumers are bracing for historic high pump prices from Friday midnight after the doubling of value added tax (VAT) to 16 percent, in what will spark fresh inflationary pressure and further squeeze pockets.
The Energy and Petroleum Regulatory Authority (Epra) will Friday gazette the new prices, which are expected to be significantly higher than the Sh182.04 and Sh167.08 per litre of super and diesel respectively in Nairobi.
The price review follows the Finance Act, 2023 which became law on Monday, paving the way for an increase of VAT on fuel to 16 percent from eight percent effective July 1.
The record-high prices will spark a fresh surge in the cost of services and products as manufacturers and service providers pass the increased costs of energy and transport to consumers.
“Following the enactment into law of the Finance Act, 2023, we will on Friday, June 30th, 2023 announce reviewed maximum petroleum prices,” Epra said in a notice on Thursday.
The costs of energy and transport have a significant weighting in the basket of goods and services that is used to measure inflation in the country.
Producers of services such as electricity and manufactured goods are also expected to factor in the higher cost of petroleum.
Inflation— the measure of the cost of living— rose to eight percent last month from 7.9 percent and the higher fuel prices are expected to drive it higher.
The economy also uses diesel for transportation, power generation and running of agricultural machinery such as tractors, with a direct impact on the cost of farm produce.
Doubling of VAT is the second blow that hit consumers and came barely two months after the State discontinued the fuel subsidy that had cushioned Kenyans since April 2021 in the wake of a global rally in crude prices.
The doubling to 16 percent is projected to increase VAT collections to an estimated Sh128.98 billion annually or Sh10.7 billion per month. The collections will, however, depend on fuel consumption and global prices of crude oil.
President William Ruto defended the proposal to double VAT on fuel on the grounds that Kenyans pay smaller taxes compared to similar economies and that higher levies provide cash to fund development projects.
