Treasury Principal Secretary Chris Kiptoo struck the right chord during the vetting exercise, saying the State would review the multiple petroleum levies and taxes – the biggest cause of the skyrocketing local fuel prices.
Kenya, just like the rest of the world, gets the same petroleum prices as international markets. Countries then decide to impose different taxes.
The difference in taxation is the main reason why fuel prices vary between countries. Kenya went on a spree, introducing a series of taxes.
Forty per cent of the retail price of petrol is consumed by taxes and levies such as excise, value-added tax (VAT), import declarations fee, road maintenance, petroleum development, petroleum regulatory, railway development, anti-adulteration, and merchant shipping levies.
To further break it down, nearly Sh63 out of Sh100 you pay for a litre of petrol goes to the taxman.
Unless and until these windfall levies and taxes are reviewed, consumers will be pressed harder. These taxes form a key plank of the country’s pricing formula.
Granted that the country requires to generate as much revenue as it can to finance programmes, pay up loans and pay its workers.
As the State mulls scrapping these taxes, it should retrace steps to 2018. MPs conspired to raise these taxes, supporting the eight per cent VAT on fuel, passed the legislation that increased VAT on fuel to 16 per cent and introduced the petroleum development levy.
They also supported the rolling back of the Covid-19 tax relief measures announced by the former President immediately after the pandemic struck.
There has been an avalanche of criticism on the fuel subsidy – it is unsustainable as much as its intentions were noble.
The pricing formula that guides the Energy and Petroleum Regulatory Authority (Epra) should be amended too.
For a while, Epra was in the spotlight with accusations that it singlehandedly raised fuel prices. These attacks deflected attention from the real cause of the local price spikes.
The impact of these taxes was understated, and consumers knew little if any of the great impact they had on them.
There is a need to strike a balance to ensure fuel and tax costs are not prohibitive especially to the retail and distribution sectors, as the consumers get to shoulder the burden passed over to them.
Though in the long term, the shift is towards total clean energy use, in the medium term, we need to offset the inflationary impact of high fuel prices.
Amending the requisite laws and removing the punitive fuel taxes would be a good start.
Mr. Mudibo is the Senior Account Director and Client Services Lead at Apex Porter Novelli, a Strategic Communications Consultancy; [email protected]
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