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Enemy within: Blame your MP for the rising cost of living and fuel

By Allan Mungai | September 17th 2021

The VAT on petroleum products was introduced in the Value Added Tax Bill enacted in 2013. [Courtesy]

Members of Parliament often claim to fight for the people who are their employers, but some of their decisions while discharging their legislative mandate, hurt mwananchi.

Under their watch, the price of fuel and basic commodities, has risen to staggering levels.

Since 2013, the price of fuel has doubled. It is an anxious time for Kenyans when, in the middle of the month, the Energy and Petroleum Regulatory Authority (EPRA) reviews the price of fuel.

Earlier this week, that review set the price to a historic new level meaning motorists will now pay Sh134.72 for a litre of petrol in Nairobi. Diesel will retail at Sh115.60 while a litre of kerosene will cost Sh110.82 this month.

That fuel price has led to widespread protest from a cross-section of Kenyans, among them, the MPs now in a lamentation spree and calling for action against EPRA and the Ministry of Energy- which surprisingly only reviews the prices while the operations are domiciled in the Petroleum and Mining Ministry.

MPs mad rush in issuing statements and summons to ministry officials is mind-boggling yet they passed the tax law in 2013 when the economy was stable and suspended its implementation to 2016 and moved it again to 2018, allowing President Uhuru Kenyatta's administration to raise its appetite for external borrowing.

Dishonest as it may sound, the MPs are calling for control of fuel prices. The House approved a controversial Bill that introduced new taxes on fuel.

The National Assembly passed the legislation that increased Value Added Tax (VAT) on fuel to eight per cent as well as introduction of the Petroleum Development Levy last year which increased fuel prices by a further Sh5.

Further, the National Assembly in December last year supported the rollback of pandemic tax relief which returned taxation to pre-pandemic figures.

Petroleum prices are subject to excise duty, road maintenance levy, petroleum development levy, railway development levy, petroleum regulatory levy, anti-adulteration levy, merchant shipping levy, import declaration fee and VAT.

The VAT on petroleum products was introduced in the Value Added Tax Bill enacted in 2013 but was not implemented until 2018 when an initial three-year extension period and a further two-year extension lapsed.

When the time came for implementing the tax increase, the legislators were up in arms, concerned that the increase would be punitive to Kenyans who were already contending with inflation.

At the beginning of September 2018, the Kenya Revenue Authority (KRA) issued a press statement confirming that 16 per cent VAT would be applied beginning that month.

Allies of Deputy President William Ruto and ODM leader Raila Odinga were up in arms, however after consultations with the President they made a hasty retreat. ODM announced that they were in support of the eight per cent tax as opposed to 16 per cent.

President Kenyatta rejected the Bill and instead proposed a reduction of the VAT to eight per cent and budget cuts in various ministries, agencies and parastatals.

The National Assembly voted on the President's recommended eight per cent VAT on petroleum products and budget cuts aimed at raising Sh55 billion to plug the deficit occasioned by the reduction of VAT on petroleum products from 16 per cent.

The House approved a controversial Bill that introduced new taxes on fuel. [File, Standard]

At the stormy State House meeting then, Uhuru read the riot act to Jubilee MPs resisting his tax proposals.

After the two meetings, the MPs went to Parliament for a flurry of press conferences where they insisted they would not back down.

They kept up their clarion call of "zero tax," referring to zero-rating of petroleum products, arguing it was insensitive to burden Kenyans with more taxes yet they were struggling with the high cost of living and pointed at the sharp rise in fares due to an increase in pump prices and the attendant consequences in other sectors to plead with the Government to abandon the push for higher taxes. In the end, Kenyans were on their own.

Uhuru took away Sh6 billion for the National Government Constituency Development Fund (NG-CDF), Sh5 billion allocation to the National Assembly and Senate, Sh2 billion for provision for affirmative action and part of the monies went towards rehabilitation of roads damaged by floods and rationalisation of the recurrent expenditure.

Uhuru went for what MPs valued most – NG-CDF, and with the monies at risk, the MPs ceded to the demand of the Executive and approved the tax increases that have condemned Kenyans to prohibitive fuel prices.

In June, Petroleum Cabinet Secretary John Munyes told the Senate Energy Committee that inaction by MPs was to blame for rising fuel prices.

“There is a role we need to play in looking at our legislation in how we tax petroleum products. We need to stabilise these fuel prices and that can only be achieved if we regularise and review how the taxing is done,” Munyes said.

In the same month the CS appeared before the Senate, the Finance and National Planning committee waved away a proposal to lower taxation on fuel on account that it would lower government revenue.

The committee led by Homa Bay Woman Representative Gladys Wanga rejected proposals by audit firm KPMG which suggested exclusion of excise duty, fees and other charges in computation of taxable value of fuel products.

KPMG said the high fuel prices were unsustainable and threatened the economic recovery after the hits of the pandemic.

“The high fuel price is therefore likely to further erode the much-needed income apportionment and affordability of other essential commodities,” the firm said.

However, the committee was of the view that the proposal would lead to significant revenue loss and offered that at 8 per cent, the tax on fuel was at a concessional rate.

Although the Parliament overwhelmingly passed the Bill into law, setting the stage for a 16 per cent VAT on fuel, the public uproar saw MPs retreat, slashing it to eight per cent.

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