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Treasury to lose billions in MPs' proposals to lower cost of fuel

By Moses Nyamori | October 6th 2021
Total Petrol Station in Kitui town on September 29, 2021. [Boniface Okendo,Standard]

Lawmakers are pushing for substantial cutting of levies charged on fuel in a raft of recommendations that will see Treasury lose billions of shillings in revenue.

Members of the National Assembly Finance and National Planning committee who have been under fire for the skyrocketing cost of fuel in the country now seek to reduce Value Added Tax (VAT) from 8 per cent to 4 per cent as well as Petroleum Development Levy (PDL) by a half.

Also targeted for reduction is the VAT rate on Liquefied Petroleum Gas (LPG) from 16 per cent to 8 per cent as well as the gross margins of oil marketing companies by Sh3.

The radical recommendations are contained in a draft report prepared by the committee chaired by Homa Bay Woman Rep Gladys Wanga.

The details emerged on a day the committee sought for a seven-day extension to make further inquiry of demurrage cost that has also been linked to the high fuel prices in the country.

The committee had been given 14 days that expires today to investigate reasons for the high fuel prices following numerous petitions to the House.

Ms Wanga yesterday told the House that the committee had made significant progress on the matter by inviting over 10 stakeholders as well as receiving several written submissions.

The committee disclosed that it has received new information regarding demurrage, informing its decision to seek for extension.

“The committee received new information regarding demurrage charges which has a bearing to the retail cost of fuel. The committee wants to inquire into the matter of demurrage. It is against this that the committee is seeking your leave for extension of the period for a further seven days,” said Wanga. Speaker Justin Muturi granted the request.

The draft document recommends reduction of PDL charged on super petrol and diesel from Sh5.40 to Sh2.90. It states that Sh2.50 will be for stabilization of fuel prices and Sh0.40 for development of petroleum infrastructure.

The MPs also seek to have petroleum development order of 2020 be revoked by amending Petroleum Development Fund Act, 1991 through provision of the amount to be charged to the PDL per litre of super petrol, diesel and kerosene.

By reducing VAT, the MPs will have to amend the Value Added Tax Act, 2015 to reflect the change in the tax rate for petroleum and petroleum products.

The draft further recommends that the Treasury prepares supplementary estimates for consideration that will reflect at least Sh4.7 billion reductions in revenue occasioned by reduced levies.

Currently, oil marketers enjoy a margin of Sh12 for every litre of petrol. The committee wants the margin reduced by Sh3 to Sh9.

The report further recommends that inflation adjustment on fuel for this year be waived to lower fuel prices. “Consequently, amend the excise Duty Act, 2015 to reflect the amendment; and inflation adjustment on fuel shall be done biennially and shall be determined by the National Assembly through the Finance Bill,” states the draft report.

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