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Tax review pushes up prices of basic items

MONEY & MARKET
By Macharia Kamau | September 20th 2021

Total Energies price board at a station along Thika Road, Nairobi. [Boniface Okendo,Standard]

The cost of living is set to make a meteoric rise as energy prices register a significant increase in recent months.

Both electricity and fuel prices have registered major increases, which is expected to have ripple effects with transporters, manufacturers and other businesses expected to further push up the cost of their products and services, including essentials.

The Kenya Private Sector Alliance (Kepsa) last week noted that electricity costs have nearly doubled in the last 10 years, which it attributed to mismanagement and poor governance at the country’s power distributor Kenya Power.

“As a result of these failings, the cost of power has since grown by over 70 per cent over the last decade, with severe impacts on the cost of doing business in Kenya, as well as placing a heavy burden on ordinary Kenyans’ cost of living and working,” said the private sector lobby, pushing for reforms at Kenya Power.

Other than fuel costs that hit historical levels last week after the Energy and Petroleum Regulatory Authority (Epra) published the September/October prices, electricity costs also appears to be headed in the same direction.

Domestic consumers will in September pay about Sh25 per unit of electricity up from Sh24.77 per unit last month. It is the highest since the 2018 August tariff review. Since then, power prices have hovered at around Sh22 and Sh22.50 per kWh but gone up significantly since the beginning of this year.

The fuel prices announced last week prices super petrol to retail at Sh134.72 per litre in Nairobi, diesel at Sh115.6 and kerosene at Sh110.82. Fuel prices could go higher beginning October as the Kenya Revenue Authority adjusts excise duty for different products including petroleum to factor in inflation.

High power and fuel prices are compounding problems for Kenyans, who are now facing a higher cost of products and services. Many are still grappling with job losses and reduced earnings.

Dickson Mbugua chairman of Matatu Welfare Association said Public Service Vehicle (PSV) operators would increase the cost of transport to pass the added cost of fuel to their vehicles to the passengers.

“If you take a vehicle that uses 50 litres of fuel per day, with diesel up by Sh8, it means that you will have to spend another Sh400 per day on fuel,” said Mbugua.

Other than PSVs, other transporters are likely to hike prices, which will, in turn, result in higher product prices. Manufacturers, other than incurring higher transport costs, also rely on fuel for some of their production processes.

They will also have to grapple with higher electricity prices. The rise in the cost of power has to a large extent been due to the increased use of thermal power producers and a weakening shilling in the recent past.

Epra last Friday pushed up the Fuel Cost Charge (FCC) component of the power to Sh3.88 per kilowatt hour (kWh – energy unit) for electricity consumed this month. 

The charge has risen sharply from Sh2.92 per unit of electricity in May this year. The fuel cost adjustment compensates thermal power producers for the acquisition of heavy fuel oil that they use at their power plants to produce electricity.

Businesses are already protesting the high power prices in the country.

“The issue of high power bills will remain as long as at least 75 per cent of the current IPPs are not retired. Consumers are paying IPPs for two-thirds of the power they do not consume,” said Stephen Mutoro secretary-general Consumers Federation of Kenya (Cofek).

The high fuel and electricity prices are rekindling the debate on taxing energy in the country. The government takes 43.65 per cent or Sh58.81 of the super petrol retail price.

It is no different for electricity where out of Sh25 that a domestic consumer pays for a unit of electricity, about Sh9.2 or 36.8 per cent will go towards taxes and levies.

In the case of petroleum, questions abound on the Petroleum Development Levy (PDL) Fund, a kitty where motorists pay Sh5.40 per litre of diesel and super petrol. The fund has a mandate of establishing retail prices of petroleum products.

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