Pump prices to spike after 184 MPs vote to increase VAT on fuel to 16pc

Pump prices are set to go up by an average of Sh10.62 a litre effective July 1, after Members of the National Assembly on Wednesday voted in favour of standard rating Value Added Tax (VAT) on petroleum products. 

This means that MPs have endorsed the proposal in the Finance Bill 2023 to revise VAT on fuel from the current 8.0 percent to 16.0 percent effective July 1st, 2023.

In the vote that took place in the National Assembly on Wednesday afternoon, 184 legislators voted in favour of the proposal versus 88 who opposed the proposal.

The legislators also endorsed the reduction of Import Declaration Fees (IDF) from 3.5 percent to 2.5 percent and also the reduction of Railway Development Levy (RDL) from 2.0 percent to 1.5 percent.

The Kenya Kwanza government is looking to mobilise at least 50.0 billion shillings in extra tax revenue in the financial year 2023/24 through this adjustment on VAT on fuel.

The National Assembly Finance and Planning Committee has defended the standard rating of VAT on fuel products arguing that the existence of multiple rates of VAT have been exploited by rogue players in the petroleum business to rip off tax payers.

“What does VAT at 8.0 percent do to the petroleum industry? There’s something we call input VAT and output VAT and so for all the players in the fuel sector, they pay input tax at 16.0 percent but once they sell that fuel to the market they do so at 8.0 percent. So when they go to claim their VAT, they are always on a credit position. What this therefore means is that it is tax payers money that has been paying the remaining 8.0 percent. It means it is tax payers that bare this burden and this is what we seek to cure”, said Kimani Kuria who chairs the Finance and Planning Committee.

Using the latest pump price review undertaken by the Energy and Petroleum Regulatory Authority (EPRA) on June 14, the changes endorsed by legislators imply that effective July 1, a litre of Super Petrol is projected to fetch about  Sh193.50 up from the current Sh182.04 while a litre of diesel will fetch Sh177.69 up from the current Sh167.28.

Kerosene will now be priced at Sh171.46 compared to the current Sh161.48.