KRA misses by petroleum VAT target by Sh3 billion

The taxman collected Sh14.6 billion from the controversial levy on petroleum products, missing the target by almost Sh3 billion.

The Kenya Revenue Authority (KRA) told the National Assembly Finance Committee the eight per cent Value Added Tax (VAT) on fuel had successfully been implemented.

Treasury had targeted to raise Sh17.5 billion from the levy that President Uhuru Kenyatta said was badly needed to finance the government’s priorities.

“Imposition of VAT on petroleum products at the rate of eight percent had a Sh14.6 billion revenue implication,” Mr Maurice Oray, KRA deputy commissioner for corporate policy told MPs.

The VAT came into effect on September 21 last year after the Opposition in Parliament failed to raise the requisite quorum to overturn it.

The proposals contained in Mr Kenyatta’s memorandum on the Finance Bill 2018 were adopted after it emerged that there were only 215 MPs present in the House.

Parliament requires at least two-thirds majority or 233 of the 349 MPs to veto the President's memorandum.

The chaotic session was characterised by walkouts by a section of the legislators who frustrated efforts to raise the requisite quorum.

The tax was originally included in a law passed in 2013 at 16 percent, but was postponed amid protests about its impact.

It implementation was followed by a countrywide uproar in an economy that largely runs on diesel and petrol.

To calm nerves, the National Assembly halved the levy to eight percent, on recommendation of Mr Kenyatta, through an amendment to the VAT Act 2013 that standardised the levy on all goods and services at 16 percent.

The VAT on petroleum was implemented in line with a deal Kenya made with the International Monetary Fund (IMF) in 2016.

Petroleum had been exempt from VAT although it remained one of the most taxed commodities in Kenya.

The IMF had been pressing Kenya to do away with tax exemption as part of a wider plan to increase revenues, reduce budget deficits and ultimately slow down debt pile up that has in recent months become a source of national concern.

The VAT charge on petroleum was part of the tough conditions the IMF set for Kenya in exchange for a standby credit facility that the country can draw in the event of economic distress.

The VAT Act, enforced on September 2, 2013, ushered in a tax regime where the more you consume, the higher tax you pay with transitional clauses for essential products such as petroleum products.

The IMF argument for reforms was that some of the households did not need the exemptions on basic goods and that the vulnerable groups such as the elderly and the disabled could be cushioned through special social-protection programmes.