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Low-hanging fruit: Why KRA keeps raiding the pump

FINANCIAL STANDARD
By Macharia Kamau | October 19th 2021

Petroleum plays a critical role in the economy from lighting and cooking to transportation and powering industries. [Courtesy]

Out of every Sh100 that Kenya Revenue Authority (KRA) collected in the last financial year, Sh14 was from taxes and levies imposed on petroleum products.

Over the financial year to June 2021, KRA collected Sh1.67 trillion in tax revenues.

Taxes on petroleum products contributed Sh232.4 billion, or about 14 per cent, of this eye-popping amount, according to KRA.

The significant growth was despite the impact of the coronavirus pandemic across different sectors.

The growth was partly driven by a hike in the Petroleum Development Levy to Sh5.40 per litre of diesel and petrol in July last year.

During the year, many of the tax heads registered modest growth, although some, like Pay As You Earn (Paye) declined.

Tax collection from fuel products is set to further grow this financial year following the imposition of a 16 per cent value-added tax on cooking gas.

Petroleum plays a critical role in the economy from lighting and cooking to transportation and powering industries.  

This guarantees a ready market for oil marketers and, in turn, revenues for KRA.

The National Assembly’s Committee on Finance and National Planning has proposed a number of tax cuts that are expected to lower fuel prices by Sh12 per litre.

Tax collection from fuel products is set to further grow this financial year. [Wilberforce Okwiri, Standard]

The measures include halving VAT on petroleum products to 4 per cent, cutting the margins for oil marketing companies by Sh3 per litre and reducing the Petroleum Development Levy to Sh2.9 from Sh5.40.

In a report tabled in Parliament last week, the committee, however, noted several concerns voiced by the National Treasury during public hearings conducted over the last month.

“Any variation in taxes and levies will have knock-on effects on the fiscal framework of the country,” said the committee in the report.  

“These fuel taxes and levies account for about 14 per cent of the annual national government revenues, and a reduction will mean that either the national government reduces its expenditures or incurs more debt to bridge the financing gap.”

The committee’s proposals might, however, fall short of the expectations of many Kenyans, as they do not touch on the high-value taxes levied on petroleum products.

These include the Road Maintenance Levy currently charged at Sh18 per litre of petrol and diesel, as well as excise duty at Sh21.95 per litre of petrol and Sh11 per litre of diesel and kerosene.

“Some of the taxes are earmarked funds, so their reduction will have direct impacts on government programmes and projects,” said the committee in its report.

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