Lawmakers should reject the proposal to double the value-added tax (VAT) on petroleum products to save the country from a new bout of inflation.
The Finance Bill, 2023 proposes to increase the tax on products like petrol and kerosene to 16 percent from eight percent as part of the government’s efforts to raise more revenue.
The problem with seeking more funds from the consumption of petroleum products is that their prices are already at record levels.
If implemented, the hike will further raise the cost of the commodities used by households, transporters and electricity producers, further aggravating inflation which the Central Bank of Kenya is battling to control.
Analysis of the proposed tax increase shows that pump prices will nearly breach the Sh200 per litre mark if the National Assembly passes it, potentially raising their cost to the highest level in the region.
The price of one litre of Super, for instance, will rise by Sh13.51 to Sh196.21. A similar quantity of diesel will grow by Sh12.4 to Sh180.88.
Once implemented, the higher prices will be seen in a general rise in the cost of living and raising the cost of doing business.
Inflation had eased to 7.9 percent from a peak of 9.6 percent in October last year. Raising the VAT rate on fuel risks denting the health of the economy in general.
The proposal comes at a time when factors such as the weakening of the shilling have kept the cost of landed refined products high.
The timing is also bad due to proposals to increase a raft of other taxes and levies.
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Note: The results are not exact but very close to the actual.
