Oil marketers’ 3-week tax bill may hit Sh4 billion

Oil marketers could be slapped with more than Sh4 billion tax bill for the 21 days Value Added Tax on petroleum products was levied at 16 per cent.

The levy on Saturday reduced to eight per cent following the coming into law of the Finance Bill 2018 that revised VAT on fuel downwards to eight per cent in a move that has been touted as a compromise deal by the State.

Since September 1, however, VAT on petroleum products was levied at 16 per cent despite public outcry.

According to daily consumption patterns of diesel, kerosene and super petrol, the Government may have netted about Sh4 billion from the higher levy.

The revenues could be more if other products such as cooking and jet fuel are factored in.

This makes VAT a lucrative and easy way for the Government to raise revenues and explains why Treasury put up a fervent fight to retain it at 16 per cent.

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According to the latest data from the Kenya National Bureau of Statistics (KNBS), the country consumed a total of 450 million litres of the three products in the month of June.

This translated to 15 million litres a day and assuming little variation in consumption patterns in the subsequent three months to September, this would translate to a daily VAT charge of about Sh200 million.

A daily consumption of 8.3 million litres of diesel, which moves the largest volumes due to demand from private motorist, transporters and industry, would net Sh108 million per day in VAT at Sh13.04 per litre.

Super petrol, whose consumption stands at 5.2 million litres per day, would bring in Sh74.9 million a day, at a VAT rate of Sh14.41 per litre while kerosene at 1.5 million litres would net in Sh19.6 million a day at a vat rate of Sh13.08.

Over the 21-day period that the levy was in place since the beginning of the month, the total revenues to KRA from the VAT on fuel would stand at Sh3.2 billion, which is payable to the taxman by oil dealers by October 20.

The total amount may have, however, been compromised by the supply shocks, resulting from protests by the independent dealers protesting the taxes earlier in the month.

Hampered uptake

The blockage of entrances to depots across the country hampered the uptake of fuel and led to a shortage and a dip in consumption.

During the four days when the dealers blocked access to the depots, uptake of petroleum products was way below the daily averages, at times dipping to below half of what would be picked on an ordinary day.

While on average the companies load seven million litres of products at the Kenya Pipeline Company’s Nairobi depot, they picked just 71,000 litres, enough to fill about two tankers only, on Wednesday, September 5.

The situation was the same in other major towns across the country, resulting in the average daily uptake of petroleum in Nairobi, Kisumu, Eldoret and Nakuru going down 50 per cent to 10 million litres on Wednesday from a daily average of 19 million litres.

Kenyan consumption stands at about 15 million litres while the balance is re-exported to neighbouring countries by road.

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Value Added TaxFinance BillKenya National Bureau of Statistics