Consumers pay price of new tax as traders raise cost of various goods

An attendant fuels a car at a petrol station
An attendant fuels a car at a petrol station in Nyeri town. FILE PHOTO | NMG 

Millions of consumers are set to be hard hit by unscrupulous traders keen to capitalise on the recently imposed 16 percent value added tax on petroleum products.

In a free market, lax regulatory oversight and little consumer protection, prices of several goods and services are already being adjusted up in varied proportion with the basic claim that fuel prices have gone up and so everything else must follow suit.

While economists agree that fuel is a critical component of almost all commodities in the market, traders who take advantage of the consumers whenever taxes are loaded on them while drag feet on passing down subsidies offered by the government remain on the spot over the fuel tax.

Nairobi-based economic expert Robert Shaw said the bad business practice has a double-edged effect by hurting consumers faced with a high cost of living while thinning government revenues in the process.

“How traders take advantage of the tax on fuel which essentially ripples through every sector may eventually lead to people cutting down on expenditure and then reducing the targeted tax collection as well. It is the traders, most of who remain in the informal and hard to tax sectors, who will reap big from this tax meaning the government may not even get the needed consumption tax in the long run,” Mr Shaw said.


The experts contend that treasury should have seen the potential zero-sum game in the new tax and initiate measures that would see the consumers cushioned from the adverse effects of the tax that eventually may translate to lower revenues for the exchequer.

Exploitative pricing is a common feature in Kenya’s free market with retailers rarely even able to adhere to the Recommended Retail Pricing even when their margins are already factored into the pricing formulas.

The concept largely applied by manufacturers to guide how much the consumers can access their products has faded away leaving retailers to set prices more than triple the recommended price for varied reasons.

A VAT increasing on essential elements of production like fuel then triggers them to become even more exploitative as no one questions their rationale as long as they are not in regulated price environment like fuel which is the only product whose pricing is regulated.

Drinks and foodstuff are the worst affected category of consumer goods which are priced differently at different places leaving consumers confused on what the real prices of the drinks should be as retailers mint extra millions from the gullible public.

It is hard for one to tell the price of a 300ml of soda for instance because it is sold between Sh30 and Sh200 depending on where you buy it. The same fate has now befallen the overall food basket with consumers bearing the burden of the greedy retailers.

Consumer Federation of Kenya secretary-general Samuel Mutoro termed the market situation a ‘disaster no one is looking at’ as consumers suffer different layers of exploitation along the supply chain with traders having a free hand to hike prices.

“For someone selling fuel, a 16 percent price rise is directly associated with the VAT but someone whose production has very little to do with fuel cannot translate the whole tax and pass it down on consumers. It is an unethical practice and it’s all about taking advantage of consumers. The sad thing is that these prices rarely come down and even when situations change and that is why we were very wary about the tax,” Mr Mutoro said.

A fare for a bus using say 10 litres of diesel worth Sh1,030 before the tax set in should have just Sh164.8 over and above the usual cost of the journey based on fuel pricing. This can be shared equally among say 10 passengers at some Sh17 per person and even less for a 32 seater minibus.

The rise in bus fare between Sh20 and Sh50 therefore beats the logic and makes the fuel price rise a cash cow for the public transport operators who cleverly started protesting the tax way before it was implemented to prepare commuters psychologically for the exploitation.

Dr Paul Gachanja, chairman of the Department of Economics at Kenyatta University said consumers are the worst hit lot since the government still stand a chance to collect revenues given that fuel is an essential economic diver and some products are hard to forgo.

“If the tax was applied proportionately on the areas it is expected to affect, the consumers would not be seriously affected, it makes government act like a farmer who is milking a cow that is very weak and as much as you get some milk, the cow may die soon.”