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Court saves motorists from fresh fuel tax increase

Tuesday October 04 2022

A court has spared motorists a fresh round of fuel price hikes, even as the taxman imposed the 6.3 percent inflation adjustment tax on more than 30 excisable products.

IN SUMMARY

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A court has spared motorists a fresh round of fuel price hikes, even as the taxman imposed the 6.3 percent inflation adjustment tax on more than 30 excisable products.

Kenya Revenue Authority (KRA) Commissioner-General Githii Mburu said yesterday that fuel will not be subjected to the inflation adjustment tax that came into effect on October 1.

“It [inflation adjustment] will affect excisable products other than petroleum products, so all other excisable products we will make that adjustment,” Mr Mburu said yesterday, adding that the KRA was aware of the prevailing high cost of living.

The Court of Appeal in December upheld a ruling by the High Court to freeze an increase in the excise tax on petroleum products on grounds that it would put pressure on the cost of living.

The cost of a litre of super petrol would have risen by Sh1.38, diesel by Sh0.70.

The taxman had sought orders quashing the High Court decision, saying that it feared millions of shillings would never be recovered even if the appeal succeeded.

The KRA further argued that inflation adjustment is based on revenue projections as prepared by the National Treasury Revenue Framework and Budget Policy Statement to meet the revenue requirements.

But the appellate court rejected the KRA’s petition, saying it was premature and unprocedural, handing a reprieve to millions of Kenyans who have been grappling with a spike in pump prices.

A litre of super petrol is retailing at a record high of Sh179.30 and diesel Sh165 in Nairobi, with the high pump prices contribute to the rising cost of living.

The increase in excise tax on fuel would have been a double blow to consumers given that the cost of other products would increase due to the inflation adjustment, further eroding their spending power.

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The KRA will make the inflation adjustment on the goods by 6.3 percent— the average annual inflation rate for the 2021/22 year— amid opposition from the private sector.

Oil marketers and alcohol and cigarette manufacturers had appealed to the Treasury to defer this year’s inflation review, saying it would worsen the inflation rate that stands at 8.5 percent— which is beyond the government’s preferred upper limit of 7.5 percent.

Industry lobby, Petroleum Institute of East Africa (PIEA) warned that inflation adjustment would further increase the cost of fuel and petroleum products, cut the purchasing power of consumers and deal a blow to the transport, agricultural and manufacturing sectors.

Manufacturers warned industries will cut their workforce, terminate supply contracts and reduce remitted taxes if consumption declined as a result of higher prices.

Kenya’s economy uses diesel for transportation, power generation and running of agricultural machinery such as tractors, with a direct impact on the cost of farm produce.

Producers of services such as electricity and manufactured goods are also expected to factor in the higher cost of petroleum

In May, alcohol distributors accused the taxman of contempt after it adjusted excise duty on the products despite a court order that had suspended the new rates that were published in November last year.

The excise duty adjustment is in line with the law that demands that it be revised upwards in tandem with the cost of living measure or the average rate of inflation in the 12 months through June.

The KRA is for the first time required to get parliamentary approval to effect the new rates following changes to the law that came into effect last year.

→ jmutua@ke.nationmedia.com

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