The State has revealed a fresh plan to scrap all taxes on cooking gas and cylinders amid multi-billion shilling investments in the sector in the latest effort to fast-track Kenya’s transition to clean energy.
President William Ruto’s Cabinet on Monday proposed the tax cuts meant to make the fuel affordable to more households.
“The following have been proposed; removal of the taxes on locally manufactured cylinders, on liquefied petroleum gas (LPG) product as well as on the cost of the cylinder revalidation,” said a Cabinet dispatch last evening.
The only tax currently charged on LPG is the Petroleum Development Fund Levy at a rate of Sh0.40 per kilogramme while LPG cylinders attract six taxes, including Value Added Tax (VAT) at a rate of 8.0 percent, Import Declaration Fee of 3.5 percent and Railway Development Levy (RDL) at a rate of 2.0 percent of the cost, insurance and freight (CIF) value.
Other taxes on cylinders are import duty at a rate of 25 percent of the CIF and excise duty at 35 percent.
The proposal comes days after retail prices of cooking gas jumped by at least Sh260 for the 13-kilogramme cylinder to Sh3,160 from Sh2,900 in July. The cost of the six-kilogramme cylinder has also increased to Sh1,380 from Sh1,200 at city stations.
The sector has attracted a growing number of investors, with the latest being the Taifa Gas, owned by Tanzanian tycoon Rostam Aziz.
Taifa Gas plans to build a 30,000-tonne LPG handling facility, setting the stage for a battle for control of the Kenyan cooking gas market that is controlled by a handful of investors, including Mombasa-based tycoon Mohamed Jaffer.
The energy regulator, the Energy and Petroleum Regulatory Authority (Epra), said recently it had received more than 13 new applications from existing and new entrants wishing to build berths for handling cooking gas imports in Kenya, as the country moves to open up the sector ahead of the price control regime in 2025.
Kenya is currently pursuing an ambitious strategy to increase the number of households using cooking gas by 2025 as part of efforts to curb air pollution and reduce the health complications related to use of kerosene, firewood and charcoal.
Parliament had in July 2021 reinstated a 16 percent VAT on cooking gas, ending a five-year period when the tax had been frozen as the government sought to lower prices and boost uptake.
Removal of the taxes harks back to the Mwai Kibaki era when LPG was tax-free, helping keep prices at an average of Sh1,600 for the 13-kg container in 2007.
The Finance Act 2023 that took effect from July exempted cooking gas from the 8.0 percent VAT, the 3.5 percent IDF and the 2.0 percent RDL.
The price of cooking gas had dropped by Sh430 for the 13-kilogramme container and Sh150 for the six-kilogramme cylinder in July following the tax cuts.
But the prices were recently increased, especially at stations owned by TotalEnergies Marketing. Retail prices at other firms like Vivo and Rubis have not been reviewed upwards.
Official data show that cooking gas is the second most popular fuel for cooking, with 24 percent of Kenyan homes using it, after firewood.
In addition to the tax cuts on the product and cylinders, the government is betting on use of the common-user import terminal to be built at the Kenya Petroleum Refineries Limited (KPRL) to lower the cost of shipping the product, and in turn pass the benefits to consumers.
The government says that completion of the facility will allow LPG to be imported under the Open Tender System (OTS) or a government-to-government deal, like it happens with super petrol, diesel and kerosene.
The maximum retail prices of the three fuels is capped and completion of the cooking gas imports-handling berth at the KPRL will allow the State to start regulating prices of the commodity.
Kenya Pipeline Company, which recently acquired KPRL, will construct the facility that will have a capacity to hold 30,000 tonnes of imported LPG.
The private sector will be allowed to build common user storage and filling plants in Nairobi, Mount Kenya, Nakuru, Kisumu and Eldoret through public private partnerships to complement the KPRL facility.
Besides tax cuts, the William Ruto-led administration is eyeing ring-fencing an estimated Sh13 million raised every month through the anti-adulteration levy on kerosene, to buy LPG cylinders for low-income households.
The Cabinet says that the money, in addition to green financing, will be used to support the distribution of the affordable cylinders in the long term.
“The Sh18 per litre anti-adulteration levy collected on domestic kerosene that was intended to be utilised for LPG growth be ring-fenced to cater for some of the interventions above, particularly the acquisition of subsidised LPG cylinders,” said the Cabinet dispatch.
An estimated 4.4 million homes are targeted under the provision of low-cost six-kilogram LPG cylinders 2025, the year when the government hopes to have all public learning facilities also use the commodity for cooking.
