Poor homes will feel the pinch of higher kerosene prices following a Sh3 raise per litre in excise duty aimed at reducing its price gap with diesel to discourage dealers from blending it with diesel for higher margins.
Treasury secretary Henry Rotich raised the duty on kerosene from the current Sh7.21 per litre to the level of excise duty charged on diesel at Sh10.31 a litre. This is the second increase in the past two years.
“The difference in the rates applicable to these two petroleum products has led to adulteration of the fuel products resulting in loss of excise duty revenue to the exchequer. In order to reduce the incidence of adulteration of fuels, I propose to harmonise the rate of excise duty applicable on illuminating kerosene,” said Mr Rotich.
The higher kerosene tax will hit poor homes that rely on it to power cooking stoves and lantern lamps hard, along with small-time fishermen who use kerosene lamps for nighttime fishing.
Kerosene is currently priced at Sh19 below diesel (per litre), making it a suitable blend for petroleum products for traders looking for higher profit margins.
The Sh3 raise, however, falls short of bridging the yawning gap between the two products. This is because diesel and petrol each attract a road maintenance levy of Sh18 per litre, while paraffin does not.
The lower excise duty on paraffin was originally meant to cushion low-income households from the high cost of living. But profit-hungry traders have turned it into a dirty cash cow that earns them millions of shillings from sale of adulterated fuel.
Fuel adulteration leads to economic losses in unpaid taxes, deterioration in performance of engines and unfair competition.
The government takes a total of Sh8.51 in taxes from every litre of kerosene sold at the fuel pump, making it the least taxed fuel, in comparison to petrol, taxed at the rate of Sh39.18 per litre, and diesel Sh29.65.
It is this price difference that has encouraged blending of diesel and petrol with paraffin to increase profit margins.