Economy

Fuel tax cuts punch Sh37bn budget hole

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The National Assembly Committee on Finance and National Planning chair Gladys Wanga (Homa Bay Women Representative). FILE PHOTO | NMG

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Summary

  • The Treasury will be forced to seek additional Sh37.6 billion to plug a budget deficit triggered by reduction in fuel and cooking gas levies and taxes.
  • MPs last evening backed a report by the National Assembly Finance committee that will reduce pump prices by at least Sh12 per litre after they rose to a historic high in the month to October 14.
  • The committee put the Treasury on notice to prepare alternatives for raising Sh22 billion following a cut on the eight percent value added tax (VAT) on petroleum products to four percent.

The Treasury will be forced to seek additional Sh37.6 billion to plug a budget deficit triggered by reduction in fuel and cooking gas levies and taxes.

MPs last evening backed a report by the National Assembly Finance committee that will reduce pump prices by at least Sh12 per litre after they rose to a historic high in the month to October 14.

The committee put the Treasury on notice to prepare alternatives for raising Sh22 billion following a cut on the eight percent value-added tax (VAT) on petroleum products to four percent.

The budget hole could also force the Treasury to cut spending in an effort to rein in the fiscal deficit as the country head into a highly charged general election that is expected to slow down economic activity.

The reduction petroleum development levy (PDL) from Sh5.40 to Sh2.50 per litre will leave a Sh11 billion funding gap.

Ms Gladys Wanga, who chairs the Finance committee said Treasury will also lose Sh4.6 billion following reduction on Liquified Petroleum Gas (LPG) VAT from 16 per cent to eight percent.

“If we adopt this report and approve the proposals contained in the Petroleum Products’ (Taxes and Levies) (Amendment) Bill, 2021, we will reduce the pump prices by Sh12 per litre.

“On the other hand, these recommendations will result in loss of revenue in terms of VAT of Sh22 billion, VAT on LPG of Sh4.6 billion and other losses including PDL of Sh11 billion,” Ms Wanga said.

The Treasury will also face the challenge of raising revenues after MPs proposed to exempt fuel from the annual review of inflation tax.

The Bill seeks to reduces the price of diesel, petrol and kerosene following public uproar.

Following House intervention on abnormal increase in pump prices, the Energy and Petroleum Regulatory Authority (Epra) cut pump prices by Sh5 for petrol and diesel and Sh7.28 for kerosine.

Motorists in Nairobi will for the next month pay Sh128.74 per litre of petrol, Sh110.60 for diesel and Sh103.54 for kerosine.

In last month review, petrol prices jumped by Sh7.58 a litre of petrol to Sh134.72 in Nairobi while diesel jumped Sh7.94 to Sh115.6 a litre.