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Kenyans against the wall as State loads high taxes on fuel products

BUSINESS
By Macharia Kamau | June 6th 2021

Motorists stuck in traffic along Kenyatta, Nairobi.[Elvis Ogina,Standard]

Fuel appears to be the cash cow that gives without relenting to the government. Petroleum products have been a target for revenue to the point where taxes are more than the cost of the product.

Nearly every year, the government introduces new tax measures or increases the existing ones. With all sectors heavily reliant of on fuel either for their production processes or taking products to market, fuel taxes almost guarantee increased revenues for the government.

The latest has been the Petroleum Development Levy (PDL), which was hiked by over 1,000 per cent in July last year.

The Petroleum ministry increased the levy to Sh5.40 per cent from 40 cents, with the promise that the money would go into a fund to be used to stabilise fuel prices.

Specifically, the ministry later said, the money would be used to subsidise the retail price of diesel in the event that the cost of crude oil went above $50 per barrel, which it breached in January this year and has been trading at well above $60 since then.

The government has, however, not tapped into the PDL Fund to stabilise fuel prices, citing lack of enabling regulations. The fund is estimated have collected over Sh20 billion since the rates were increased last year.

There is also an excise tax on petroleum and other products which is revised annually based on average inflation rates, with the new rates coming into effect every October.

In October last year, the hike on excise duty resulted in the price of super petrol going up by a shilling per litre while diesel and kerosene went up by 50 cents.

Motorists pay Sh21.95 per litre of super petrol and Sh11.37 on diesel and kerosene, rates that could go up in October this year.

Currently, for every litre of super petrol that a motorist buys in Nairobi at Sh126.37 per litre, Sh57.77 or 45.7 per cent goes to the government in taxes and levies. This is even bigger than the landed cost of the product.

The landed cost to cost of the fuel when it reaches Mombasa before additions such as oil marketers’ margins, transport costs and taxes are loaded – used in computing retail prices for the May-June pricing cycle was Sh52.92 per litre of super petrol.

Overtaxation

"Kenyans pay taxes almost equivalent to the landing cost of petroleum products at the pump. This amounts to overtaxation of (citizens) who are already struggling to make ends meet,” said the Kenya Civil Society Platform on Oil and Gas in a statement.

The lobby said it has been tracking fluctuations in pump prices and has flagged the issue of increasing taxation, noting specifically that the contribution of tax to the retail price of petrol has gone up by almost 10 per cent in the recent past.

“Kenya currently has the highest pump price for petroleum products in East Africa, even more than some of its neighbours that are landlocked. This carries potential risk of fuel trafficking across Kenya’s borders.”

While Parliament has in most instances givens its blessing to the government whenever it is introducing new tax measures, the Senate Committee on Energy last week appeared vexed about the current high cost of fuel.

The committee chaired by Nyeri Senator Ephraim Maina raised concerns about the failure by the Petroleum ministry to put in place mechanisms that would enable it draw from the PDL Fund to stabilise local fuel prices.

“We have had several meetings with the CS Petroleum regarding the sporadic increases in prices of fuel, with the most recent meeting being on March 31 in which the CS promised us that the ministry was putting up a petroleum fund to cushion consumers against the sporadic increases, which it has not done,” said Mr Maina.

“These increases are coming frequently and at a time Kenyans are grappling with hardships. This matter cannot be left unattended.

"Fuel is a central aspect… when fuel prices go up, everything goes up… we are going to do everything we can to make sure that this is curtailed,” the senator added.

The committee had sought a meeting with Petroleum Cabinet Secretary John Munyes to explain the progress in setting up the PDL Fund last week Wednesday but he did not show up, which saw the committee summon him under the Parliamentary Powers and Privilege Act, 2017. 

If he does not show up, Mr Munyes could face a fine of up to Sh500,000.

"We are invoking the relevant laws and he is being summoned to appear before this committee on June 14, failure to which we will use the law to make him appear and answer Kenyans,” said Maina.

It is, however, not the first that Munyes has had a run-in with the committee after being invited and failing to show up for a meeting. He got away lightly, despite the threats.

That fuel is an easy target for Treasury’s revenue-raising measures is clear even to the Petroleum ministry, which in March, while trying to justify the high pump prices, noted taxes formed a key component of fuel prices.

Munyes said in a statement that high taxation of petroleum products is not unique to Kenya but a global practice.

While he compared prices in Kenya and other markets, the data that he gave showed that while Tanzanians and Ugandans are highly taxed, they are nowhere near the level that Kenyans are subjected to.

“Taxes and levies form a key component of the petroleum pump price not only in Kenya but across many countries. The contribution of taxes and levies to the current pump price of super petrol is 46.68 per cent, to that of diesel is 42.24 per cent while to that of kerosene is 40.42 per cent,” the CS said.

“Regionally, the contribution of taxes to pump prices is as follows: Uganda 34.11 per cent and Tanzania 38.82 per cent.”

In his comparison, Munyes also compared Kenya’s tax regime with those of more advanced economies whose citizens have much higher spending power.

Benchmarks

While many have high tax rates for petroleum, their level of service delivery is also nowhere close to the Government of Kenya’s public service to its citizens.

“A quick benchmark across the other world economies indicates that as of 2020 the tax contribution to pump prices was as follows – India (69 per cent), Italy (64 per cent), France (63 per cent), Germany (63 per cent),” said Munyes.

Among the major recent hikes in taxes is the eight per cent value-added tax effected in 2018 on all petroleum products, which was a negotiated rate after public outcry rather than the standard 16 per cent.

The same year, the government introduced an anti-adulteration levy on kerosene at Sh18 per litre of the fuel, which raised its cost to be at par with that of diesel to dissuade unscrupulous traders from increasing diesel volumes with kerosene.

Excise duty on kerosene was also increased by Sh3.10 per litre, pushing the total excise duty to Sh10.31 from Sh7.21, in a move aimed at reducing adulteration.

The Road Maintenance Levy has in the last decade doubled to Sh18 per litre of diesel and petrol from Sh9 per litre. It was initially adjusted in 2014 to Sh12 then to Sh18 in 2016.

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