Here is what fuels oil prices increase

Exactly two weeks from today, the Energy and Petroleum Regulatory Authority will be announcing new fuel prices, the monthly ritual by the regulator since 2010. 

Although the complex formula that determines how much consumers are charged for a litre of petrol, diesel or kerosene could be difficult to conceive for many, the pricing basically comprise just four main elements; the landed cost, taxes and levies, storage and transport charges as well as a dealers’ margin.

Off all the four, taxes and levies make the largest component and the least flexible; meaning consumers can expect to pay this component on every litre of fuel no matter how the international crude prices behave; creating a permanent barrier to cheaper fuel.

There are seven levies and two taxes milked from consumers for each litre of petroleum product. There is even tax on tax after the Tax Laws (Amendment) Act, 2020 prescribed the use of excise duty (a tax) and all the other levies in computing Value Added Tax

The law which into came into force on 25th April 2020 and was factored into the fuel prices in the May/June period, includes taxes and levies as part of the vatable base of petroleum products.

In the latest prices announced last month, taxes and levies make more than half the Sh105.43 per litre charged on motorists for a litre of petrol. The percentages for both diesel and kerosene are equally close to 50 percent.

Road maintenance levy

From a road maintenance levy of Sh18 for each litre of petrol and diesel, petroleum development levy (Sh5.40 per litre on all the motor fuel) and Sh0.40 for a liter on kerosene, petroleum regulatory levy (Sh0.05 per litre on all the three petroleum products, as well as railway development levy Sh0.68, on every litre of motor fuel and 10 cents less on kerosene which is also loaded with another Sh18 per litre called anti-adulteration levy and Merchant Shipping Levy of Sh0.3 per litre of each petroleum product.

That is not all, the products are then subjected to excise duty which accounted for close to a fifth of the petrol prices announced by EPRA. Diesel and kerosene consumers were charged Sh10.84 per litre in excise tax alone.

The excise tax is then used together with all the other levies to compute VAT which was controversially introduced in September 2018.

Analysts contend the move to target fuel for taxation is driven by the growing demand of the commodity as the economy continues to grow and more people purchase cars.

Audit and tax advisory service firm Grant Thornton Kenya Director Samuel Mwaura said the government is keen to continue harvesting from the commodity due to its potential to grow in consumption as the country’s economy bulge.

“The government would like to milk maximum benefit for any product whose demand is on the rise or whose consumption is not extremely affected by the situation of the economy like fuel and airtime. That is why they have even gone ahead to put tax on another tax for such products,” Mr Mwaura said.

After landing in Mombasa at just Sh35 per litre of petrol and diesel, the taxes were significant in pushing the prices of the two products to above Sh100 for petrol and Sh95 per litre for diesel.

The fuel taxes have deeper ramifications for Kenyans including the poor and rural households that still rely on kerosene for lighting and cooking. The latest data shows that at least 1.7 million households use kerosene to cook.

The number which represent some 14 percent of the households in the country largely comprise poor urban dwellers meaning no one is spared in the government’s continued hunt for taxes from petroleum products.

Urban areas

According to the Kenya Integrated Household Budget Survey (KIHBS) 2015/16, 36.1 percent of Kenyans are living on less than Sh1,900 per month for rural areas and less than Sh2,700 per month for urban areas.

This has likely worsened based on the findings of the Survey on Socio Economic Impact of Covid-19 on Households Report conducted by the Kenya National Bureau of Statistics (KNBS) earlier this year

Kenya Civil Society Platform on Oil and Gas in their analysis following the July pump prices said the continued pain from taxes on fuel is likely to worsen the economic situation for many Kenyan households.

“Fuel was identified as an essential good under the Price Control Act, 2011. The original intention of price controls was to alleviate suffering of mwananchi from unscrupulous commercial interest. What has changed since 2011? Kenyans should be leveraging on the global drop in oil prices to cushion other negative socio-economic impacts of the Covid-19 pandemic.

It is unconscionable that during a pandemic the government would adopt policies that would only serve to widen inequality within the country,” KCSPOG Coordinator Charles Wanguhu said in the analysis criticizing the fuel pricing regime.

 Transport, which is the third weightiest factor after food and Housing, water and electricity in measuring inflation according to the Kenya National Bureau of Statistics significantly changed in August even as inflation stayed at 4.36 percent unchanged from July.

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