Kenyan government to impose a 16 per cent VAT on fuel

KTN News Aug 23,2018

View More on KTN Newsdesk

Motorists will over the next month have to dig deeper into their pockets after the Energy Regulatory Commission (ERC) increased the pump price of super petrol by Sh1.50. The latest price hike comes as a precursor to an even steeper increase in pump prices of all petroleum products, with the National Treasury set to start charging value added tax (VAT) on fuel next month.

According to the regulator monthly pricing guide released on August 14, a litre of super petrol will now retail at Sh113.73 in Nairobi, up from Sh112.2 last month. Users of diesel will, however, enjoy some reprieve, with a litre of the fuel going down by 51 cents to Sh102.74.

Poor households that largely rely on kerosene for their cooking and lighting needs will also get some relief after the regulator reduced the price of the fuel by 78 cents to Sh84.95 per litre in the capital. ERC said the maximum allowable retail prices were due to a slight increase in the price of imported petroleum products. “The average landed cost of import super petrol increased by 3.08 per cent from $737.77 per tonne in June 2018 to $761.55 per tonne in July 2018, diesel increase 0.18 per cent (to $683.25 per tonne) and kerosene decreasing by 1.32 per cent (to $721.62 per tonne,” said ERC in a statement.

The proposal to hike fuel pump prices further next month is on the back of a push by the International Monetary Fund (IMF). The Bretton Woods institution wants the Government to hike taxes on some products in a bid to increase domestic revenue collection so as to slow down on taking new loans.

The re-introduction of VAT on fuel was among the conditions given to Treasury by IMF in 2015 when it initially gave Kenya the Sh150 billion standby credit facility. VAT on the three commonly used fuels and jet fuel will push the cost of a litre of super petrol to over Sh130 in Nairobi and well over Sh140 per litre in far flung towns. Diesel, which is critical in powering different economic sectors, is expected to rise to over Sh119, which would in effect see price of basic goods go up.

ERC, however, said it had not received instructions from Treasury to increase pump prices. But it said taxes are among the components of the fuel pricing formula in addition to the product costs, distribution and storage costs as well as wholesale and retail margins for oil marketers. “The commission has not yet received information from the Treasury with regards to the factoring in of VAT tax on all petroleum products. As such, the commission is still awaiting official communication on the way forward,” said the regulator in an earlier statement.