The country was Friday on edge as it awaited the much-anticipated return of President Uhuru Kenyatta from China on whose hands the fate of the controversial fuel tax rests.
President Kenyatta has remained tight-lipped on the 16 per cent value added tax on all fuel products that came into effect on September 1 amid public outcry even as the National Treasury digs in to continue levying the punitive tax.
The country is waiting with bated breath to see if the President, who has been on a week-long trip to China, would put pen to paper, assenting to the Finance Bill 2018, offering temporary reprieve to consumers who have seen fuel pump prices reach unprecedented highs.
Kenyans are also keen to see whether the National Treasury will obey orders by the High Court, suspending the implementation of the tax.
This as the market remained uneasy, with industry players warning that the supply shock experienced this week in the wake of the new tax but appeared to have subsided somewhat Friday was only a tip of the iceberg.
The business community said retaining the high fuel prices could cripple an economy that is barely out of the woods after last year’s shocks due to the hotly contested presidential election.
They said manufacturing could grind to a halt while the cost of living is expected to go through the roof due to the ripple effect fuel prices have on almost all spheres of the economy.
While data showed that oil marketing companies had resumed picking products from depots run by the Kenya Pipeline Company (KPC), the uptake is yet to reach the average daily levels experienced before the price hike a week ago. Despite the beating that the economy is about to experience, President Kenyatta continues to hold his cards close to his chest while his Treasury mandarins appear hell-bent on making Kenyans pay up.
“We believe that the recent resurgence of the economy will be negatively impacted by this move and this will reverse any growth we have seen in the past year. There is a general pessimism amongst businesses as increases in fuel prices have an inflationary effect that results in an increase of everyday prices,” said Kiprono Kittony, chairman Kenya National Chamber of Commerce and Industry, in a statement.
“This will further hurt the growth of the manufacturing sector, leading to a slowdown as production costs will definitely rise with the VAT. We are asking the government to rethink its options for financing its development and recurrent expenditure instead of overtaxing various products that already bear large tax burdens. Touching on petroleum products will create a catastrophic spiral effect on all prices since practically every product has a transport component in the pricing.”
The High Court in Bungoma on Thursday issued orders quashing the decision by Kenya Revenue Authority (KRA) and the Energy Regulatory Commission (ERC) to levy VAT on petroleum products. ERC is yet to issue new pricing in line with the court order, saying it is awaiting directive from The Treasury. There are reports that Treasury officials refused to be served with the scanned copy of the orders and instead want a hard copy of the ruling.
Stanbic Holdings warned that introduction VAT on petroleum products could drive headline inflation to six per cent in September and 7.5 per cent in October if retained.
Over the past six months, inflation figures show that fuel inflation has risen from six per cent in January to over 14 per cent last month. With the VAT adjustment, fuel inflation is expected to spike, spreading through other basic items and dragging up the general cost of living. The country is emerging from a crippling fuel shortage that was a result of a segment of oil marketing companies boycotting and also blocking other companies from lifting petroleum products from the depots in protest of the high fuel prices.
As of Tuesday, many petrol stations had run out of stock while the few that had products were characterised by long queues as motorists resorted to panic buying. The situation persisted throughout the week and only started normalising on Thursday evening. The marketers under the aegis of the Kenya Independent Petroleum Dealers Association (Kipeda) had vowed not to relent until the tax is withdrawn.
The taxes were introduced in 2013 following enactment of the VAT Act. They were later suspended for a three-year period to 2016, but Parliament extended this to 2016. The two-year suspension of 2016 lapsed on August 31, with the clauses in VAT Act kicking in on September 1.
“It (fuel supply) has normalised. The independent dealers called off the strike and the trucks have been loading,” ERC Director-General Pavel Oimeke told Weekend Business.
According data from KPC, Nairobi was the most affected, with oil marketing companies’ uptake of petroluem products from the depot in Industrial Area being way below the daily averages. While on average the companies load seven million litres of products, they picked just 71,000 litres on Wednesday or just about two tankers. On that day, the blockage of Nanyuki Road where the KPC facilities as well as those of some marketers are located had reached fever pitch.
The situation was the same in other major towns across the country, resulting in the average daily uptake of petroleum in Nairobi, Kisumu, Eldoret and Nakuru going down 50 per cent to 10 million litres on Wednesday form a daily average of 19 million litres.