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Why you could pay more for fuel from midnight

BUSINESS NEWS
By Macharia Kamau | April 14th 2021
Fuel pumps at a petrol station in Nairobi. [File, Standard]

Kenyans could pay more for fuel as the pump prices keep up with the rising cost of crude oil in the international markets.

This is even as they wait to see if the government will take up advice by the International Monetary Fund (IMF) to standardise Value Added Tax (VAT) on petroleum products, which would double the tax rate to 16 per cent from the current eight per cent.

The cost of fuel is likely to go up from midnight, on the account of higher crude oil prices last month.

The Energy and Petroleum Regulatory Authority (Epra) will use the March price   in determining the maximum prices that oil marketers can charge for super petrol, diesel and kerosene.

Public outcry

However, although the market sentiments seem to be bullish over higher pump prices, the State might consider sparing consumers the pain after the previous review drew public outcry.

This was after fuel prices increased by more than Sh7.

Over the month, crude oil prices averaged at Sh6,955 ($65) per barrel. This is up from Sh6 592 ($61.61) per barrel Epra used to compute the current prices.

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Crude oil cost has in the recent past reduced to trade at Sh6,740 ($63) per barrel yesterday.

The Shilling traded at over Sh109 to the US Dollar throughout March and has only strengthened in April to the current level of about Sh107 per dollar.

The reduction in the cost of crude and relatively strong shilling, if sustained throughout April, might hand Kenyans some relief next month, which is if there are no other shocks including a review of petroleum taxes.

If the government yields to pressure by the IMF to align “fuel VAT to the standard rate,” it will be the second time that the State has increased taxes on fuel in under a year.

Last year, the government increased the petroleum development levy to Sh5.40 from 40 cents per litre of super petrol and diesel, which irked Kenyans and saw them fail to enjoy the historical drop in crude oil prices when it sunk to Sh1,819 ($17) on average in April.

“The increase in taxes on the price of petroleum during global downturn of crude prices denied Kenyans a much-needed cushion during the Covid-19 pandemic. As global crude prices have risen to pre-pandemic levels Kenyans are now feeling the inflationary impact of governments taxation policy,” said Charles Wanguhu, coordinator, Kenya Civil Society Platform on Oil and Gas.

“It is clear that the government has been using taxation as a tool to service its increasing debt burden. Fuel is an essential good and punitive taxation on the product has a ripple effect on not only directly related sectors like transport, whose price index has gone up by over 18 per cent compared to a similar period last year but also other indirectly related sectors like food security.”

Huge taxes

“With the proposed increment in VAT and increasing international crude oil prices, citizens should expect to see an impact on other frequently utilised household commodities and services such as electricity.”

Petroleum and Mining Cabinet Secretary John Munyes last month defended the high fuel prices, attributing it to high crude oil costs.

He inspired little hope when he told the Senate Committee on Energy that the country should expect a further increase this month as global oil prices go up.

Mr Munyes, however, attributed the high prices in the country to huge taxes on petroleum products in the region, in what appeared to be blaming his National Treasury counterpart.

Taxes and levies are the single largest item charged on fuel, with motorists paying Sh57 as taxes for every litre of super petrol they buy, which is currently retailing at Sh122 in Nairobi.

The landed cost – the product cost when it arrives in Mombasa before taxes, margins and other costs are loaded – is Sh49 per litre.

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