Treasury sees inflation up 2pc on new fuel tax

The Treasury on Wednesday forecast inflation to jump by up to two percentage points on the back of the new fuel tax which has raised transport costs and pointed at higher prices of goods.

This means inflation will rise to 6.04 per cent from the 4.04 per cent recorded in August in what will see consumers cutback on costly goods and ultimately dim Kenya’s economic growth momentum

The tax, which came into force on September 1, is part of a government bid to boost revenue collection in order to narrow its fiscal deficit and secure an extension of a standby credit facility from the International Monetary Fund.

“At the Treasury, we estimate an inflation rise of between one and two per cent this month,” Treasury Chief Administrative Secretary Nelson Gaichuhie told the Senate Energy Committee on Wednesday. The new VAT on fuel raised the retail price of petrol by 12 per cent per litre, prompting transport operators to increase charges.

The tax was originally included in a law passed in 2013, but was postponed several times amid protests about its impact.

Kenya Revenue Authority introduced the tax despite Parliament voting for its delay by two years, arguing that the MPs’ proposal was yet to become law because President Uhuru Kenyatta had not signed it.

Mr Kenyatta could still reverse it by signing a Bill postponing it, a decision he must make today. Mr Gachuhie told senators that postponing implementation of the Act for two more years would do little to solve the problem.