Fuel prices to go up as new tax measures kick in

A commutter walks past Shell Petrol Station. [Peter Ochieng, Standard]

Fuel prices are set to go up tomorrow morning as most of the clauses in the Finance Act, 2023 start kicking in.

The Energy and Petroleum Regulatory Authority (Epra) said yesterday it would today announce the new prices that will factor in a higher Value Added Tax (VAT) of 16 per cent from the current eight per cent.

Pump prices for diesel and super petrol are expected to go up by Sh12 a litre once the 16 per cent VAT rate is applied. This will push the price of the super petrol to about Sh195 per litre in Nairobi and Sh182 for diesel. Prices of kerosene and jet fuel are also expected to go up.

The energy industry regulator yesterday said it would publish a new price capping guide today, with the new prices expected to take effect on Saturday morning.

"Following the enactment into law of the Finance Act 2023, we will on Friday, June 30 announce reviewed maximum petroleum pump prices," said Epra in a public notice.

The regulator is required by law to publish maximum pump prices on the 14th of every month and these remain in place for the next month.

It can, however, issue an addendum in case of changes warranting immediate action, including changes in tax laws. The higher VAT on fuel is expected to see retail fuel costs go upwards of Sh200 in far-flung towns such as Mandera, Elwak and Moyale where a litre of super petrol is currently retailing at more than Sh190.

The higher fuel prices are expected to have a knock-on effect on the cost of other goods and services. Kenyans should thus brace for an increase in transportation costs as well as other goods and services, including manufactured goods as industries adjust their cost and pass on the higher production and transportation costs to consumers.

"We just need to brace for tough times ahead," David Wanjohi, a senior tax manager at Ernst and Young (EY) told The Standard in an interview on Monday.

He added that the higher taxes could see motorists abandon their cars and opt for public service vehicles for their daily commutes. The end result could be a failure by the government to realise the increased tax revenues from the petroleum sector.

"Some of these goods and services do not have an inelastic demand. People will inevitably look for alternatives... whereas you would think there would be the same economic activity, for example, in the transport sector, people who would take matatus will now probably walk to work. If there were two vehicles in a household, they will now probably use one. We have seen this happening, especially with the slow economic downturn in the recent past."

Higher prices of fuel last year, which was on account of an increase in the cost of oil globally at the time and a weak shilling, resulted in Kenyans cutting back on fuel consumption.

According to data from the Kenya National Bureau of Statistics (KNBS), local demand for petroleum products declined by 1.1 per cent to 5.1 million tonnes in 2022.