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New taxes to drive up your power, fuel bills

By Macharia Kamau | Published Wed, March 7th 2018 at 00:00, Updated March 7th 2018 at 07:47 GMT +3
Among the levies that will see your energy bills go up are the reintroduction of 16 per cent value added tax (VAT) on petroleum products. [Photo: Kipsang Joseph]

In summary

  • But some senators have vowed to oppose any efforts to burden Kenyans further
  • National Treasury has lined up a series of new levies to bridge budget deficit and service debt of about Sh5 trillion

Kenyans should brace themselves for higher energy bills this year as the National Treasury tries to grow its income.

The Government has lined up a series of new levies as it tries to bridge its budget deficit.

The new revenue streams offer a glimpse of hope to Treasury, especially when the country is grappling with a debt of about Sh5 trillion.

The Government has resorted to imposing fresh taxes across sectors, with energy being its latest target.

Petroleum products

Among the levies that will see your energy bills go up are the reintroduction of 16 per cent value added tax (VAT) on petroleum products.

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There is also a 0.5 per cent Energy Regulatory Commission (ERC) fee on petroleum and electricity and a 2.5 per cent royalty fee charged to geothermal power producing companies that is likely to be passed to consumers.

According to the Bill sponsored by Leader of Majority in the National Assembly Aden Duale, the royalties will be shared by communities and the national government.

This is part of the Energy Bill recently tabled at the National Assembly and whose proposals will result in more pain for consumers in increased electricity bills if passed into law.

Currently, electricity consumers pay three cents per unit and 12 cents per litre of diesel and petrol as ERC levies.

The proposal, if it becomes law, will increase electricity bills by 40 per cent.

This is the second time the Bill has been introduced in Parliament. President Uhuru Kenyatta, in October 2016, asked MPs to remove a clause that demanded that Kenya Power compensate customers for losses resulting from electricity blackouts.

The new VAT levy, expected to begin in September this year, is being pushed by the International Monetary Fund (IMF) to enable Treasury to increase its domestic revenue collection.

The re-introduction of VAT on fuel was among conditions IMF gave the Treasury in 2015 when it initially gave Kenya the Sh150 billion standby loan. The loan was later suspended but is up for review this month.

If successfully reintroduced and current market conditions persist or worsen, including the projected rise in cost of crude oil, VAT will push the cost of a litre of super petrol to over Sh120 in Nairobi and well over Sh130 in far-flung towns such as Wajir, where a litre of fuel currently sells at Sh120.

Consumers have had to contend with high electricity bills due to shortage of rains last year. This led to increased reliance on thermal power. The rising cost of crude oil in the international market also translated into higher pump prices locally.

Narok Senator Ledama Olekina, a member of the Committee on Energy, said he would oppose the additional taxes.

“At the moment, the energy sector is heavily taxed. We cannot afford to add another Sh17 to the current price of petrol,” Mr Olekina said.

He added: “Introducing VAT on fuel will hurt the common mwananchi. That agreement (between Kenya and IMF) was made two years ago. It may have made sense then as fuel prices were low. The same cannot be applied at the moment.”

Olekina said the committee would also look into claims of conflict of interest and cartels said to be behind the push to review taxes. They would also examine reliance on diesel-fired thermal electricity producers.

“We need a conversation and be honest with each other and sort out the problems we have in the energy sector. The energy sector is messed up.” ERC boss Pavel Oimeke said the energy sector would only play its role as an enabler for other sectors.


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