Brace for higher fuel prices as gov’t proposes rise in VAT on petroleum products.

Kenyans should brace for more pain at the pump as the price of fuel could go up by more than Ksh.10 should the Finance Bill 2023 get approval from parliament.

The bill which is currently before Finance and National Planning Committee seeks to reverse a decision made in 2018, where VAT on fuel was reduced to 8 per cent to give reprieve to Kenyans.

However,by amending a clause that seeks to harmonize the VAT act, the VAT on fuel will double to 16 percent meaning that the price of fuel in the country will go up by more than Ksh.13 a litre based on the current prices.

“One of the reasons that the government is moving to remove the 8% could also be to harmonise the VAT act which has two clusters. The 0 rate and 16%. Fuel is the only commodity that is charged 8%,” says Senior Tax Manager Fred Kimotho.

This proposal will significantly increase the cost of fuel which is an integral commodity in the Kenyan economy. This will have a ripple effect on the cost of production and consumer products in general.

Additionally,petroleum products are one of the most taxed commodities in the country with a total of 9 levies including , Road Maintenance Levy, excise tax, Petroleum development levy , Petroleum Regulatory Levy , Railway Development Levy rate , Anti-Adulteration Levy , Merchant Shipping Levy and the contested VAT.

The latest move by the government is seen as counterproductive as it negates efforts that they made to facilitate the importation of fuel from the United Arab Emirates following a deal with the Middle East government.

The deal which was hoped to bring down the cost of fuel allowed Kenya to delay payments for oil imports by up to six months to ease pressure on the demand for dollars.

Article By Suzy Nyongesa.