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Why fuel lands in Kenya at Sh60 but is being sold at over Sh130

EXPLAINERS
By Winfrey Owino | September 16th 2021

A man fueling a car at the Petrol Station in Nairobi. [Courtesy]

Kenyans have been wondering why the landing cost of fuel is relatively low, yet the prices they’re paying for the commodity at the filling station is more than double that cost.

For instance, according to the latest EPRA review, a litre of petrol lands in Mombasa at Sh60.35, diesel at Sh53.88 and kerosene at Sh54.44. However, the commodities, in Nairobi are sold at Sh134.72, Sh115.60, Sh110.82 respectively.

On Petrol, at least Sh74 are gobbled up by taxes; diesel Sh62 and kerosene Sh56.

But what are these taxes, and what are their rates?

Of the Sh74 paid by the petrol consumer in form of levies, Sh21.95 is excise duty, Sh18 (road maintenance levy), Sh5.4 (petroleum development levy), Sh2.04 (import declaration fee) and Sh9.98 (value-added tax).

The other levies, which push the extra petrol costs to the Sh74 mark, are railway development levy, merchant shipping levy, distribution and storage costs (Sh3.17) and oil marketers’ margins (Sh12.39).

On diesel, at least Sh62 is consumed by the outlined taxes for a litre of the commodity.

Of the Sh62 extra diesel costs, excise duty takes up Sh11.37, road maintenance (Sh18), petroleum development levy (Sh5.4), import declaration fee (Sh1.81), railway development levy (Sh1.04), value-added tax (Sh8.56), distribution and storage costs (Sh2.9) oil marketers’ margins (Sh12.36), among others.

Excise duty for kerosene, which takes up Sh56 in extra costs, is Sh11.37; value-added tax (Sh8.21), railway development levy (Sh1.05), import declaration fee (Sh1.83), distribution and storage costs (Sh2.88), oil marketers’ margins (Sh12.36), anti-adulteration levy; which is unique to kerosene only, (Sh18), among others.

The extra levies are the ones said to be responsible for the high fuel prices in Kenya.

Infographic: The Standard Checkpoint

In comparison with her neighbours, Kenya charges the most for fuel.

For instance, a litre of petrol in Uganda retails at Sh131.85, diesel at Sh117.48 and kerosene at Sh88.76. In Tanzania, one litre of petrol goes for Sh115.27, diesel Sh106.91 and kerosene Sh103.27.

In Rwanda, a litre of petrol retails at Sh121.33, diesel Sh117.48 and kerosene Sh30.37.

In Ethiopia, which has the lowest fuel prices in the region, a litre of petrol goes for Sh51.57, diesel (Sh45.58) and kerosene (Sh44.65).

Tax expert Nikhil Hira says the only way the Kenyan Government can lower taxes, particularly on fuel, is through a reduction in Government expenditure.

“Taxation is the Government’s way of financing itself. Some of the levies imposed are for road maintenance and developing Turkana Oil. Unfortunately, those funds are rarely used for those purposes,” Hira told The Standard.

“The Government should adopt more public-private partnerships to reduce the Government expenditure, and offset the public debt,” he said.

The tax expert observes that the high fuel prices are going to be around for a while, due to the economic crisis wrought by Covid-19.

“If the Covid-19 restrictions are lifted, the country’s revenue collection will increase, and maybe the taxes could be reduced,” he said.

On September 9, Treasury Cabinet Secretary Ukur Yatani projected that oil prices in Kenya would remain high in Kenya for the next six months, resulting in inflation and a depressed economy.

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