Economy

Parliament mulls fuel tax cuts in new Budget Bill

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An attendant at a Total Petrol Station in Nairobi. FILE PHOTO | NMG

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Summary

  • Taxes on petroleum products are set to be lowered from July as Parliament seeks to contain growing public anger and pressure over soaring fuel costs in the country.
  • The Energy committee of the National Assembly said it would propose lower taxes and levies on petroleum products through the Finance Bill of 2021.
  • Petrol will is currently retailing at a level last seen in November 2011 while diesel is selling at the highest level since December 2018.

Taxes on petroleum products are set to be lowered from July as Parliament seeks to contain growing public anger and pressure over soaring fuel costs in the country.

The Energy committee of the National Assembly said it would propose lower taxes and levies on petroleum products through the Finance Bill of 2021.

Petrol will is currently retailing at a level last seen in November 2011 while diesel is selling at the highest level since December 2018.

The sharp rise in fuel prices since the start of the year has shifted the spotlight on taxation of petroleum products, with Kenyans in border towns reportedly seeking cheaper fuel in neighbouring countries of Tanzania and Uganda.

“We need to look at the taxes. As a committee we are meeting next to review the Finance Act and propose changes,” David Gikaria, chairman of the Energy committee, said yesterday.

“The onus is on Parliament now to sit and look at the levies and taxes critically.”

The Finance Bill is the legal instrument that the Treasury and Parliament use to introduce new taxes and scrap or lower existing taxes. The changes have a significant weight on the pricing of consumer products and services.

The Treasury is required by law to table the Finance Bill in Parliament before April 30 and have it approved by the President by June 30.

Motorists in Nairobi are paying Sh122.81 per litre of super petrol from Sh115.18, representing a Sh7.63 increase, and Sh5.75 more for a litre of diesel at Sh107.66.

The Energy and Petroleum Regulatory Authority (Epra) linked the expensive fuel to the recovery in crude oil prices, which increased the cost of imported refined fuel from $55.27 a barrel to $61.61 in April last year.

There are seven levies and two taxes that Epra takes into account when setting fuel prices, which have been blamed for the high cost of super petrol, diesel and kerosene in the last review of prices on March 14. The prices, which came into force on March 15, will expire on April 14.

Taxes and levies account for Sh57.33 for every litre of super petrol, and Sh45.47 and Sh39.55 per litre of diesel and kerosene respectively.

Excise duty accounts for the biggest chunk of the taxes and levies at Sh21.95 per litre in the latest prices followed by Road Maintenance Levy (Sh18), VAT (Sh9.10) and the Petroleum Development Levy (Sh5.40).

Others are Railway Development Levy, Anti-adulteration Levy, Merchant Shipping Levy and the Import Declaration Fee.

Epra also considers the landed cost of petroleum imports, margins for the oil marketing companies, and storage and distribution costs when setting the fuel prices.

Kenya’s prices of diesel and petrol are the highest in East Africa, despite countries like Uganda and Rwanda that are landlocked relying on the Port of Mombasa to import their petroleum products.

A check on GlobalPetrolPrices.com — a website that tracks fuel and electricity prices for over 150 countries — shows that a litre of petrol in Kampala is selling at Ush3, 960 (Sh118.90) while that of diesel is going for Ush3,700 (Sh111.10).

In Kigali, the capital city of Rwanda, a litre of petrol is retailing at 1,088 Rwandan franc (Sh120.26).

In Dar-es-Salaam, a litre of super petrol is selling at Tsh1, 981 (Sh93.67), making it the cheapest in the region.

The record jump in the prices of super petrol and diesel in Kenya will pile more pressure on households because the cost of energy and transport have a significant weight in the basket of goods and services that is used to measure inflation in the country.

Producers of services such as electricity and manufactured goods will also factor in the higher cost of petroleum, unleashing pricing pressure across the economy with ramifications on the cost of living measure.

In Kenya, for instance, the majority of the population relies on kerosene and gas for lighting and cooking, making crude price a key determinant of the rate of inflation.

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