Cooking gas marked for VAT, rail tax exemptions 

liquid petroleum gas cylinder

Retailers selling liquefied petroleum gas (LPG). LPG, raw material for the manufacture of fertiliser, and improved tea for export will be exempted from value-added-tax (VAT) if Parliament approves proposals in the Finance Bill 2023.

Photo credit: File | Nation Media Group

Liquefied petroleum gas (LPG), raw material for the manufacture of fertiliser, and improved tea for export will be exempted from value-added-tax (VAT) if Parliament approves proposals in the Finance Bill 2023 that are aimed at bolstering economic growth through President William Ruto’s Bottom-up Economic Transformation Agenda (BETA).

The Bill also seeks tax exemptions on the transportation of sugarcane from farms to milling factories as well as raw material for pharmaceutical and pest control products manufacture.

LPG is currently subjected to taxes at the rates of 8 per cent VAT, Import Declaration Fees (IDF), and Railway Development Levy (RDL).

The Finance Bill 2023 now proposes to exempt LPG from all these taxes and levies—a move that would significantly make cooking gas affordable to Kenyans and ease pressure on the country’s forest cover by limiting the felling of trees for charcoal burning.

A VAT exemption on LPG would be a buildup on gains from the Finance Act 2022 which cut the tax charged on cooking gas by half, handing consumers a major relief amid rising global prices of the commodity and other petroleum products.

The Finance Act 2022 cut the tax on LPG supplies from 16 per cent to eight per cent. LPG was among petroleum products whose prices hit the roof last year on global dynamics— triggering an 80-per cent jump in Kenya’s total petroleum products import bill last year and squeezing consumers.

Data from the newly released Economic Survey 2023 shows that the country’s total import bill of petroleum products rose to Sh628.4 billion in 2022 from Sh348.3 billion in 2021—marking an 80.41 per cent jump.

“This was mainly attributed to sharp rises in prices of petroleum products globally,” the survey said.

Kenyan households had since June 2016 enjoyed low cooking gas prices after the Treasury scrapped the tax on LPG to cut costs and boost uptake among the poor who rely on dirty kerosene and charcoal for cooking.

Price increase

Parliament however reinstated a 16 percent VAT on cooking gas in 2021, which together with the rally in crude prices saw the prices of the commodity shoot up significantly before the interventions in the Finance Act 2022.

Exporters of processed tea, as well as manufacturers of fertilisers and pharmaceuticals, could also get some relief if Parliament endorses proposals in the Finance Bill 2023.

Tea remains a major economic mainstay for millions in Kenya and one of the country’s main forex earners.

The Bill processes VAT exemption for “all tea sold for purpose of value addition before exportation”. Earnings from tea grew 24.3 per cent to Sh156.7 billion in 2022.

VAT exemptions on raw materials for pharma manufacture would also hand a reprieve to patients hard hit by the effect of weakened shilling and high global prices of key inputs.

Most of the medical supplies be it medicines, surgical supplies, or medical equipment are imported. Even those manufactured locally still require several active pharmaceutical ingredients (APIs).

A spot check by Nation last month revealed that the cost of healthcare in Kenya had shot up sharply as the impact of a heavily weakened shilling raised the overall prices of imported medicines, surgical supplies, and medical equipment by up to an average of 15 per cent, the pilling strain on the medical bills of millions of households already scorched by a high-cost living.

The rise in the prices of medical consumables—which make up to 30 per cent of a patient’s care—is already reflected in the overall cost of healthcare.

Fertiliser consumers would also get some relief as VAT exemptions on raw materials used to manufacture the commodity would lower prices and boost farming which remains a main economic driver.

The provision of cheap fertiliser is a key target in President Ruto’s economic transformation agenda with the government sinking billions of shillings towards the purchase and distribution of subsidised fertilisers.

The Finance Bill 2023 also seeks to prop up exports of value-added to maximise returns from the commodity through premium prices even though some analysts caution that tax exemptions on tea purchased from factories and the auction could be counterproductive.

“The proposal by the government to exempt tea purchased from factories or auction centres for purposes of export from VAT is likely to be counterproductive as the factories cannot claim the input VAT for processing the tea. The factories will be forced to find a way to either absorb the cost or pass it on tea importers” Alex Kanyi, partner at law firm, Cliffe Dekker Hofmeyr (incorporating Kieti Law LLP) and Brandon Otieno, a trainee advocate said in a commentary.