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New fuel taxes to pump Sh6b into State coffers in 30 days

By Awal Mohammed | July 17th 2020

The government stands to earn as much as Sh6.3 billion in just one month in the wake of the recent upward review of fuel pump prices by the energy regulator.

Going by the new monthly pricing guide announced by the Energy and Petroleum Regulatory Authority (Epra), the exchequer will pocket Sh1,419 for every 33-seater minibus matatu that tanks up on diesel.

The regulator in the new pricing guide announced every 14th of the month raised petrol and diesel prices by Sh11 and Sh17 respectively.

Motorists are as a result now parting with Sh100.48 for a litre of petrol in Nairobi, up from last month’s Sh89.10.

This means it will now set back a motorist Sh600 more to fill the tank of an ordinary car with a capacity of 50 litres of super petrol compared to last month, according to the computation in the new formula.

Further interrogation of the formula also shows that the Kenya Revenue Authority (KRA) will receive Sh350 more for every litre of the fuel sold for the next one month.  

According to the Kenya National Bureau of Statistics Economic Survey of 2020, the country consumed an average of 119 million litres of super petrol per month and 183 million litres of diesel last year.

And going by last month’s consumption patterns, the taxman collected Sh5.1 billion in taxes levied on petrol alone, while diesel raked in Sh6. 2 billion.

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With the new price change, where government taxes have increased by Sh7 and Sh8 for petrol and diesel respectively, the exchequer is set to earn even more money.

In total, KRA is projected to collect Sh1 billion extra in revenue this month from super petrol and Sh1.4 billion from diesel.

The extra cash is guaranteed by the Petroleum Development Levy order that was gazetted earlier this month by the Mining and Petroleum Ministry.

In the recently enacted Tax Amendment Act 2020, the ministry introduced a Petroleum Development Levy of Sh5 while adding Sh2 extra on the Value Added Tax (VAT) charged on the product.

“There shall be paid a levy on all petroleum fuels consumed in Kenya with a tariff code, and the levy shall be paid to the Petroleum Development Fund with effect from July 15, 2020,” read the gazette notice in part.

But it is not only the government that is reaping big at the expense of motorists.

Previously, owners of petrol stations earned Sh3.89 per litre of super petrol sold, but this has more than doubled to Sh8.19.

The higher retail margins are at the expense of wholesalers whose margins nearly went down 50 per cent to Sh4.2 per litre from Sh7 previously.

Consumers will also be affected by the increase in the retailers’ margin.

Previously, they have paid Sh10.89 per litre as a combined margin for the wholesaler and retailer, but this has gone up to Sh12.39.

Enforcement of the revised tariff, which loads the VAT and the Petroleum Development Fund component after all other levies have been applied, has led to the rise in the price of a litre of petrol and diesel by up to Sh11 and Sh17 respectively.

The increase in global crude oil prices has also not helped the situation.

Last month, crude oil was selling at $23.52 (Sh2,500) per barrel but has since risen to $36.34 (Sh3,850). 

“Taking into account the weighted average cost of imported refined petroleum products, the changes in the maximum allowed petroleum pump prices in Nairobi... for super petrol, diesel and kerosene increase by Sh11.38, Sh17.30 and Sh2.98 per litre respectively,” said Epra Director General Pavel Oimeke.

Both petrol and diesel landing prices have been on an upward trajectory since May.

The landed cost of super petrol at the Mombasa port this month increased to $279 (Sh29,574), representing 12.64 per cent increase, while that of diesel rose to $310, representing a 32.16 per cent increase, which contributed to the hike in the prices.

And considering that millions of litres of fuel are consumed daily, the cumulative implications for motorists and KRA are huge.

“This in effect means that the excise duty, fees and other charges are to be included when determining the taxable value in respect of the said goods,” KRA said in a notice to Epra earlier this month.

Previously, the taxable value of petrol, diesel and kerosene did not include the additional levies, including import duty, railway development fee, road maintenance levy, among others.

The government’s hunger for taxes haunts the sector and is the key driver of prices.

Going by last month’s review, the government pocketed Sh43 for every litre of petrol sold. This month, it will take home an additional Sh10 to push the total tax levied on super petrol to Sh53.

This is according to the revised Petroleum Development Levy on super petrol and diesel in the Tax Laws (Amendment) Act, 2020, and the eight per cent value-added tax charge that fuel products attract passed in the Finance Act, 2018.

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