Owalo urges state to scrap 8pc VAT on petroleum products

Audio By Vocalize

Former Deputy Chief of Staff Eliud Owalo is proposing the reduction or scrapping of the 8 per cent Value Added Tax on petroleum products to cushion Kenyans from harsh economic times.

Owalo said that while such a move would result in short-term revenue losses for the government, the economic stimulus generated by lower fuel prices could offset part of the loss through increased economic activity and broader tax generation.

Addressing Journalists in Nairobi, he said that several levies significantly contribute to the high cost of fuel, including the Road Maintenance Levy and the Petroleum Development Levy (PDL), which despite being used for price stabilisation, serious questions continue to be raised regarding its application, transparency, and accountability.

"During periods of economic crisis, the government should consider temporarily capping the margins of Oil Marketing Companies and retailers to prevent excessive profiteering and ensure that any reductions in import costs or taxes are fully passed on to consumers," said Owalo.

The former Deputy Chief of Staff said that Kenya currently lacks a functional national Strategic Petroleum Reserve and that establishing such reserves would allow the country to purchase petroleum products when global prices are low and release them during periods of high prices or supply disruptions.

Owalo explained that the current Government-to-Government fuel import arrangement has been criticized for its lack of transparency and failure to secure competitive prices arguing that the government should urgently re-evaluate the framework and consider transitioning toward a more open and competitive procurement model that allows multiple suppliers and promotes better price discovery.

He argued that Kenya’s over-reliance on limited supply routes and suppliers exposes the country to geopolitical and logistical risks arguing that exploring alternative supply routes and diversifying international suppliers would strengthen resilience against disruptions and potentially improve pricing competitiveness.

"The current monthly fuel price review cycle by EPRA may not be sufficiently responsive during periods of extreme volatility, introducing more frequent reviews, particularly during global crises, would ensure that reductions in international oil prices are passed on to consumers more quickly, " said Owalo.

 He argued that in the long term, investing in and modernizing local refining capacity could reduce Kenya’s dependence on imported refined petroleum products, lower logistics costs, reduce foreign exchange pressure, and enhance national energy security.

Owalo said that the current fuel crisis should serve as a wake-up call for Kenya to accelerate the transition toward alternative energy sources while promoting electric mobility, expanding public transport infrastructure, and incentivizing renewable energy adoption across industries would reduce reliance on fossil fuels and shield the economy from future global oil shocks.

He warned that the skyrocketing fuel prices in Kenya represent a serious national economic crisis driven by a dangerous combination of global shocks, excessive domestic taxation, and structural inefficiencies within the fuel import system.

Owalo claimed that comparative analysis shows that Kenya has become both a regional and global outlier in fuel pricing.

"How can landlocked Uganda have cheaper diesel than Kenya when most of its fuel passes through Kenya? How can Tanzania and Ghana maintain significantly lower fuel prices than Kenya? How do we rationalize the fact that despite global fuel price hikes exacerbated by tensions in the Middle East, it is Kenya that continues to bear one of the heaviest burdens?” Posed Owalo.

The former Deputy Chief of Staff claimed that Kenyan fuel prices are no longer being driven purely by global oil prices, they are being driven by over-taxation, failed policy choices, non-competitive fuel import arrangements, and misplaced government priorities stating that no economy can grow when the cost of movement, production, and survival becomes unbearable.

Owalo emphasized that addressing this crisis requires decisive, bold and comprehensive action from the government.

He said that by implementing immediate fiscal relief measures alongside strategic long-term reforms Kenya can reduce the burden currently crushing households and businesses, strengthen energy security, restore economic confidence and place the country back on a path toward sustainable and inclusive economic growth. 

Follow The Standard on