MPs’ plan to reduce fuel prices

Reduction by half of Value Added Tax (VAT) charged on petroleum products is among the recommendations by a parliamentary committee to reduce the price of fuel.

Also targeted for slashing is excise duty and Petroleum Development Levy as well as the scrapping of the 1.5 percent Railway Development Levy, the multiple taxes blamed for the spiralling price of fuel.

MPs also want to amend regulations to require the Energy and Petroleum Regulatory Authority (EPRA) to seek parliamentary approval before announcing price reviews.

These proposals are contained in a report by the Finance and National Planning committee that is expected to be tabled in the National Assembly today for consideration.

Sources within the committee told the Nation members had come up with the far reaching recommendations they felt would reduce the price of fuel that has risen sharply, sparking public uproar.

 Stabilising prices

“We have explored several options including the reduction of VAT which we believe if adopted by the House today will help in stabilising the prices,” said the sources.

The committee proposes the VAT on fuel is reduced by half- from the current eight per cent to between four and six percent.

Should MPs approve these recommendations, the retail price would fall by at least Sh5 per litre for petrol, Sh4.28 for diesel and Sh4.1 for kerosene.

Following the latest review, consumers are paying Sh9.98 per litre of petrol, Sh8.56 for diesel and Sh8.21 for kerosene.

The VAT on fuel was introduced by the VAT Act of 2013 but its implementation was deferred by three years until 2016.

Another two-year extension was granted through the Finance Act but when it lapsed in 2018 the government imposed tax.

Also targeted by MPs for reduction is excise duty currently charged at Sh21.95 per litre of petrol, Sh11.37 each for a litre of diesel and kerosene following the latest price review.  

 The excise tax, which is reviewed annually to cater for inflation, is the single largest tax component on fuel prices this month.  

By last evening members of the committee chaired by Ms Gladys Wanga were still haggling on the figures for the reduction.

 “Excise duty is supposed to be charged on luxuries like beer, but you are charging it on fuel which is a necessity. Why can’t you remove the excise on fuel so that it can spur economic growth and then you can collect much more excise from the luxuries?” Ms Wanga posed last week.

The lawmakers also want the application of the Petroleum Development Levy reviewed so as to cushion consumers against the constant increase of prices.

Also targeted for abolishment is the 1.5 percent Railway Development Levy, which the government introduced through the Finance Act, 2013.

 In a petition, Matungulu MP Stephen Mule has called for the scrapping of the levy, which cost consumers Sh1.16, Sh1.04 and Sh1.05 per litre of petrol, diesel and kerosene, respectively, in the latest review.   

Petroleum Development Levy

The MPs will be keen to streamline how the fund is managed by the Treasury to ensure monies drawn from the fund are used for the intended purpose.

This even as the Ministry of Petroleum concludes public participation on new regulations that will govern how the fund is managed.  

Last week, Treasury Principal Secretary Julius Muia shocked lawmakers by revealing that the exchequer had virtually depleted the kitty meant to stabilise fuel prices.

 The funds meant to cushion consumers had been diverted to the State department of Infrastructure for upgrade of petroleum facilities.

The National Assembly’s Committee on Delegated Legislation last week said it will recommend to Parliament to revoke an order by the Ministry of Petroleum seeking to include diesel among products whose Petroleum Development Levy charge would be raised from Sh0.40 to Sh5.40 per litre.

But the energy regulator has been charging the levy from July last year without a legal basis, which means the levy on diesel, by far the most consumed fuel in the country, is illegal.

MPs can now exploit this legal gap to stop the government from continuing the levy on the product without need to amend the Petroleum Development Levy (Amendment) Order, 2020.

The report also proposes a review of the demurrage charges to the ships bringing fuel in the country.

The high costs charged for the delays at the Port of Mombasa by fuel tankers are passed on to the consumers.

MPs heard from the energy regulator that demurrage charges cost taxpayers Sh110 million per month, totalling to over Sh1.2 billion each year.

It is these losses that MPs want fixed as they believe they contribute to the high cost of fuel.

These storage and distribution costs account for 2.35 per cent of petrol price, 2.5 percent of diesel and 2.6 per cent of kerosene prices.

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