The price of the 13-kilogramme cooking gas will fall by at least Sh230 if MPs approve changes to the law halving the value-added tax (VAT) on the commodity.
MPs were last night debating the proposal to reduce the tax from the current 16 percent to eight percent on liquefied petroleum gas (LPG).
The proposed changes to law come a year after Parliament reinstated the 16 percent VAT on cooking gas, which together with rally in crude prices has seen the cost of the 13kg LPG rise by Sh900 since June.
Costly gas added to the rising fuel and food prices that have pushed inflation to a 27-month high and become a political headache for the government ahead of the August 9 General Election.
The proposal to halve VAT was fronted by Kikuyu MP Kimani Ichung’wah and MPs were still debating the proposal by the time this paper went to press.
“Section 5 of the Value-Added Tax Act, 2013 is amended by in the case of the supply of liquefied petroleum gas, including propane, eight percent,” says the proposal.
Kenyan households had since June 2016 enjoyed low cooking gas prices after the Treasury scrapped the tax on LPG to cut costs and boost uptake among the poor who rely on dirty kerosene and charcoal for cooking.
Prices for the 13-kg cooking gas fell to below of Sh2,000 in October 2016 after the Treasury scrapped the 16 percent VAT.
The LPG prices are not controlled unlike other petroleum products and the new tax will fuel fears that dealers could exploit the market forces to their advantage, even as international crude prices continue to rise.
The energy regulator in 2010 started controlling prices for diesel, petrol and kerosene to cushion consumers from high costs, blamed on cartel-like behaviour among dealers.
Cooking gas was left to the market forces of supply and demand. Currently, the 13-kg cooking gas retails at Sh3,350 while the 6-kg is going for Sh1,550, up from Sh1,250 in June last year.
The rise in the cost of cooking gas has piled pressure on families that are struggling to foot daily bills due to job losses and drastic cuts in earnings in the wake of the coronavirus pandemic.
LPG is the second most used cooking fuel in Kenya, with 23.9 percent of households, behind firewood that is used by 55.1 percent.
Kenya’s inflation hit a 27-month high in May, squeezing household budgets and demand for goods and services.
This has forced many households, especially in the low-income segment, to reduce their shopping basket in an environment where firms have frozen pay raise as they recover from Covid-19 economic hardships.
The rise in the cost of essential commodities has forced workers to cut back spending on non-essential items such as beer and airtime, ultimately hurting firms like East Africa Breweries Limited (EABL) and Safaricom.
Costly commodities have hit workers hard given that the average real wages, adjusted for inflation, stood at negative 3.83 percent last year compared to negative 0.59 percent in 2020.
Employers say the real wages will take longer to improve amid the recovery of the economy from Covid-19 economic hardships, which delivered layoffs, pay cuts and business closures.
Kenya’s private sector has also been hit by the rising cost of living measure.
The private sector activity fell in April, hurt by rising consumer inflation and supply shortfalls for some goods.
The S&P Global Kenya Purchasing Managers’ Index (PMI) dropped to 49.5 from 50.5 a month earlier. The 50.0 mark separates growth in activity from contractions.
The survey indicated that due to the higher inflation, customer demand had in turn slowed down.