Cooking gas prices are set to shoot up next week after Parliament rejected the push to scrap introduction of the 16 percent value-added tax on liquefied petroleum gas (LPG).
Members of Parliament refused to return LPG into zero-rated category stating it would dent the Treasury’s expected taxes and cost the government input tax claims from industry players.
This means that households will from July 1 pay at least Sh360 more for the 13-kilogramme cooking gas that now retails at about Sh2,250.
The Finance Act 2020 amended the VAT Act by deleting the supply of LPG including propane from the list of zero-rated items under the Second Schedule to the VAT Act.
The new tax was introduced last year but implementation was postponed by a year, meaning it will become effective next week.
Petroleum Institute of East Africa (PIEA) argued that the retail price of LPG has been brought down substantially and it is unlikely that lower-income Kenyans will sustainably switch to LPG and subsequently affecting the country’s goal of achieving clean cooking goal by 2030.
“The Committee rejected the proposal to reinstate LPG under the zero-rating schedule. This is because zero-rating LPG will attract input tax refund which will consequently contribute to tax expenditure,” the Finance Committee said.
“The Committee observed that the removal of VAT on LPG will lead to significant reduction of revenue, hence distorting the fiscal framework for the 2021/22 financial year,” the committee said.
More than half of urban homes use LPG with the 2019 census putting 53 percent of town homes using the fuel while only 5.6 percent of rural households use gas for cooking.