Economy

Cooking gas prices rise to levels before VAT removal

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Gas cylinders on display at Nairobi’s Pipeline Estate on April 2, 2023. PHOTO | LUCY WANJIRU | NMG

The average cost of cooking gas has shot back to levels that prompted the Ruto administration to scrap the eight percent value-added tax (VAT) in a bid to lower prices and raise use in line with Kenya’s policy to transition to clean energy.

Households paid Sh3,031.82 on average to refill a 13-kilogramme liquefied petroleum gas (LPG) cylinder in November, the latest official data shows, near the Sh3,069.01 level in June when the eight percent VAT last applied.

Read: LPG use up in first half defies high price

Analysis of the data collated by the Kenya National Bureau of Statistics indicates that the average cost of 13kg cooking gas hit lows of Sh2,709.07 before starting to rise steadily, and has now hit the levels before the taxes were reduced.

That shows homes and businesses consuming 13kg gas saved a maximum of Sh359.94, or 11.73 percent, on average on the cost after the tax was removed, a gain which has been clawed back by suppliers in about five months.

The short-lived reprieve to consumers has seen the taxman questioning the effectiveness of the VAT exemptions in helping cushion consumers from the high cost of living.

“Sometimes we ask ourselves that if we give these reliefs for purposes of assisting the consumer, will it trickle down to the consumers? Take the example of LPG where we first halved the rate [to eight percent] last year and this year, we have zero-rated it. Have you seen the prices of LPG reduce in line with the relief?” posed a deputy commissioner in the Domestic Tax Department at the Kenya Revenue Authority, who did not want to be identified as he is not allowed to talk to media on the topic.

“In 2020 we also reduced VAT from 16 to 14 percent [between May and December 2020]; did you see any changes in any price of goods?”

The retail prices of LPG rose between September and November when the global cost of propane — which, together with butane, is used to make cooking gas— fell by double-digits. Propane fell from a high of $0.77 per gallon (about 2.6 kg of gas) on September 14 to a low of $0.63 on November 16.

LPG is charged Petroleum Development Fund Levy at a rate of Sh0.40 per kilogramme, while the importation of LPG cylinders attracts import duty at a rate of 25 percent of the cost, insurance, and freight (CIF) value and excise duty at 35 percent. Other charges include an Import Declaration Fee of 2.5 percent and a Railway Development Levy (RDL) at a rate of 1.5 percent.

The Cabinet meeting in October proposed to scrap all taxes on LPG to make the fuel affordable to most homes, including low-income ones, in a bid to cut reliance on kerosene, charcoal, and firewood which are not environment-friendly.

The plan is to remove “taxes on locally manufactured cylinders, on liquefied petroleum gas (LPG) product as well as on the cost of the cylinder revalidation,” according to a Cabinet dispatch on October 9.

The State has since 2016 been keen on ensuring affordable clean energy supply to low-income homes through the failed Mwananchi Gas Project.

The project which aimed at promoting the use of clean cooking energy by distributing six kilogramme LPG gas to poor households has encountered numerous bottlenecks, including budget cuts in recent years, which have slowed down its rollout.

Besides six-kilo gas cylinders, low-income households were also supplied with low-pressure, two-burner cook stoves.

The project under the cash-strapped National Oil Corporation of Kenya (Nock) had initially targeted more than three million poor households following a pilot in Machakos and Kajiado counties before the target was lowered to 300,000 homes.

Read: Relief as cooking gas prices drop on tax cuts

The beneficiaries were to pay a discounted price of Sh2,000 in three years for the cylinder and burner, with refills pegged at Sh840 at the time.

Nock, however, suspended the project in June 2018, citing distribution challenges with the State audit office establishing that some Sh870 million had been spent with no value to taxpayers.

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