An attendant fuels a car at a petrol station in Nyeri. FILE PHOTO | NMG
The introduction of eight per cent VAT on petroleum products is bound to have extensive ramifications on the cost of living.
This is because an increase in fuel prices will cause a chain reaction, pushing up the prices of basic goods, leading to costly standard of living.
The economy is also bound to suffer as cost of operations among businesses, particularly manufacturers, are bound to be on the upward trend.
From the above scenario, it may look like the rise of fuel prices can only have negative impact on the economy. However, we can take advantage of this situation to change some of our behaviours that have partly contributed to the mess we are in. This especially in regard to our motoring habits.
We like driving big cars without taking into considerations their consequences on the environment and the prices of fuel. We have put so many cars on our raods such that the demand for fuel is always high. This is why when there is a hitch in the supply chain, however small, we witness long queues at petrol stations.
In addition to the fact that Kenyans are addicted to cheap second-hand Japanese cars, the average engine size of the vehicles on our roads is 1800cc. Compare this with a country like India whose average is 1300cc. This is interesting because India is a much wealthier and developed country than Kenya.
Kenyans now must learn to use vehicles of smaller engine capacity if we are to lower the demand of fuel. We can follow in the footsteps of Americans during the height of the 1970s oil crisis where average vehicle size shrank by over 50 per cent. There are more important benefits of a smaller average engines capacity. Kenya will save a lot of foreign exchange. Fuel accounts for a huge part of the cost of our imports, and if we found a way to significantly cut it, we will help balance our books of trade, leading to a healthier economy and a stable shilling.
Another advantage of high fuel prices is of course reduction in traffic. We spend hours in perennially clogged traffic and lose millions of shillings, particularly in Nairobi.
With increase in fuel prices, more people would leave their cars at home and use matatu more. This could be the solution to the current problems of traffic in the capital city where we have too many vehicles on the road.
The challenge is how we can apply taxation measures to bring about such positive changes without hurting the common man. As it is constituted, the current tax regime does not spare Wanjiku the pain of rising cost of living. In fact, the poor bear the heaviest brunt.
We may need to consider what is called discriminative taxation. This model is used in Hong Kong where the price of petrol is made far much higher than diesel for instance. This is informed by the fact that diesel is a key driver of the economy.
In Kenya, most personal cars use petrol. Therefore, if you imposed a heavier tax on petrol, we would be reducing traffic, saving the environment and cutting the cost of imports.
By having diesel at a lower cost, we will be boosting the manufacturing sector and farming activities.
The government can then move ahead to ban importation of diesel cars only allowing commercial vehicles such as buses and trucks.
Kariukiis the chairman China- Dubai Traders Group. Email [email protected]
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
