Treasury asks MPs to delay VAT on gas by one year

The National Treasury is seeking to delay the implementation of a 14 percent value added tax (VAT) on cooking gas by at least one year to prevent MPs from scrapping the new levy from a Bill that will become law on July 1.

Members of the National Assembly Finance Committee, which is reviewing the Bill, said the Treasury is pushing for the gas levy to be included in the Bill, but delayed to allow for a smooth implementation from July 2021.

The Finance Bill 2020 has removed liquefied petroleum gas (LPG) from tax-exempt goods under the VAT charge, which will see the cost of the 13-kilogramme cooking gas rise by at least Sh300.

Members of the Finance Committee want the gas levy deleted from the Bill, warning that it would push more households to use dirty fuels like kerosene and charcoal for cooking. The committee is expected to table its final report on the Bill this afternoon, setting the stage for approval of the new taxes for the financial year starting July 1.

“Treasury has requested that we approve the 14 percent VAT on LPG but on condition that its implementation should take effect from next year as was the case with the introduction of the eight percent VAT on petroleum,” Samuel Atandi, a member of the committee, told the Business Daily yesterday.

“We did not agree to implement the VAT on LPG from July 1 because we feel this is not the right time given the effects of Coronavirus pandemic and other factors. We will make a final decision when we complete our report,” the Alego Usonga Constituency MP said.

Restrictions imposed to curb the spread of Coronavirus, like the night curfew and ban on public gatherings, have slowed down business activities, triggering layoffs, pay cuts and unpaid leave for workers, thus hurting their incomes and ability to spend.

Kenyan households have since June 2016 been enjoying low cooking gas prices after the Treasury scrapped VAT on LPG to cut costs and wean the poor from kerosene and charcoal.

Cooking gas prices stood at an average Sh2,231 in June 2016, and dropped to below Sh2,000 in October, four months after the scrapping of the 16 percent VAT.

The cost of the commodity, however, has been on a steady rise since 2017, and has wiped out the tax benefits that came with the elimination of VAT to retail at Sh2,150 at petrol stations.

Now, the Treasury says this is proof that the elimination of VAT is benefiting dealers, arguing that LPG costs have not fallen in tandem with other petroleum products following the collapse of crude oil prices in the global markets. Diesel prices have dropped 27.4 percent since the start of the year while gas is down 3.2 percent in the same period.

Unlike the fuel prices, which are adjusted on the 15th of every month and stay in place for one month, Kenya does not control cooking gas prices.

Energy and Petroleum Regulatory Authority Director-General Pavel Oimeke said the imposition of VAT will lead to a rise in cooking gas prices and a reduction in uptake. About 28 percent of urban households use LPG for cooking compared with kerosene (29 percent) and charcoal (22 percent).