A consumer lobby now wants the government to shelve the implementation of a 16 per cent Value Added Tax (VAT) on petroleum products expected to start in September in line with a deal Kenya made with the International Monetary Fund (IMF) two years ago.
The Consumer Federation of Kenya (Cofek) secretary-general Stephen Mutoro said on Friday the new tax if effected would lead to a spike in cost of living affecting low income consumers the most.
“By dint of this proposed measure, the cost of travelling, transport of goods, food and general inflation will radically rise,” said Mr Mutoro in a statement.
“Needless to mention, this would occasion shrinking of consumer spending and with it, unemployment and flooding of counterfeit goods shall be enhanced.”
Motorists in Nairobi are expected to pay a record price of Sh130.15 per litre of petrol, mostly consumed by private cars, or about Sh17.9 more from next month as petroleum products start attracting 16 per cent VAT.
Treasury principal secretary Kamau Thugge confirmed on Thursday that petroleum products will start attracting the 16 per cent VAT beginning September.
At prevailing prices, diesel used to power commercial vehicles such as buses and tractors, will soar by Sh16.5 to Sh119.77 from next month in Nairobi with the new tax.
The tax pain will also catch up with consumers of kerosene, relied upon by low income homes for lighting and powering cooking stoves, whose price will hit Sh99.44 a Sh13.7 rise from next month promising additional pain for low-income households.
Earlier estimates showed that the 16 per cent tax charge on all petroleum products could earn the Treasury – which has continued to suffer perennial budget holes, amid rising expenses, slowing tax revenues and a spike in borrowing to bridge shortfalls -an additional Sh71 billion per year.
VAT is levied at the point of sale and is calculated as 16 per cent on all other costs of the product, including other taxes and levies, other than VAT.
As such, the additional pain at the pump will be compounded by rising global oil prices which have been increasing cost for net importers such as Kenya.
Consumers in far-flung towns will thus pay even higher prices arising from added costs like transport, the sum of which forms the principal amount on which VAT is levied.