Drop in fuel use denies Treasury Sh5.63bn in levies

Fuel pump

An attendant holds a fuel pump at a fuel station along Kimathi Street. 


Photo credit: File | Nation Media Group

Revenues from two key levies on petroleum products fell by Sh5.63 billion in the year ended June 2024, reflecting drop in fuel consumption in a softening economic setting characterised by reduced money in circulation.

Treasury documents show that collections from road maintenance levy fund (RMLF) and Petroleum Development Levy (PDL) dropped on the back of reduced use of diesel and petrol compared with previous year.

Receipts from RMLF or fuel levy reduced by Sh4.05 billion, or 5.78 percent, to Sh66.07 billion in the review year, while PDL or fuel stabilization fund went down Sh1.58 billion, or 6.09 percent, to Sh24.34 billion.

The fuel levy is collected at the pump and was set at Sh18 per litre of petrol and diesel from July 2016 until June 2024, before being raised to Sh25.

The PDL, on the other hand, draws funding from deductions at the pump at the rate of Sh5.40 per litre of petrol and diesel, and Sh0.40 for kerosene.

“Petroleum Development Levy declined 6.1 percent largely due to a drop in share contribution of petrol and diesel to overall oil volumes from 61.3 percent in FY 2022/23 down to 54 percent in FY 2023/24,” the Treasury wrote in the 2024 Budget Review and Outlook Paper (BROP) last week.

Analysis of data collated by the Kenya National Bureau of Statistics shows consumption of diesel, used in running machines in key economic sectors such as transportation and agriculture, contracted by 78,650 metric tonnes in the year under review to 2.14 million tonnes.

The 3.55 percent drop in diesel use came in the year valued added tax (VAT) on fuel doubled to 16 percent, denying consumers full benefits from a softening global prices.

Motorists also cut purchase of super petrol by 67,550 tonnes to 1.41 million tonnes, a 4.57 percent drop compared with the previous year.

The fall in collections from RMLF — where the bulk of proceeds goes to road maintenance, rehabilitation, and development— prompted President William Ruto administration to raise the levy 39 percent.

“I would not be exaggerating to say that the recent adjustment in the fuel levy rate was a critical, vital and urgent step without which the heavy investment of recent years in building new roads would ultimately prove to be largely in vain,” Roads and Transport Cabinet Secretary Davis Chirchir told lawmakers in September.

The drop in PDL, a fuel stabilisation fund created by the predecessor administration of Uhuru Kenyatta in 2021, prompted the Treasury to tap cash from the exchequer, government’s main account, to partly cushion consumers from high diesel and kerosene prices.

“These subsidies relate to petroleum products and were used to stabilise prices of fuel when there were sharp increases in prices due movement in global fuel prices. Ideally, fuel price stabilisation should be funded from the Petroleum Development Levy (PDL) and not from exchequer resources,” director-general for Budget, Fiscal and Economic Affairs at the Treasury Albert Mwenda said earlier, explaining the expenditure of Sh47.26 billion to subsidise prices in the review year.

“Subsidies are channeled through the Oil Marketing Companies, but ultimately the beneficiaries are citizens and businesses (consumers of petroleum products).”

Average fuel prices have steadily fallen since hitting record levels in October 2023 to last month’s levels of Sh180.66 for a litre of super petrol and Sh168.06 for diesel.

This has helped ease growth in average prices of goods and services to 2.7 percent last month, the softest year-on-year rise in 17 years.

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.