Fuel pump

Fuel attendant holding a fuel pump at a filling station along Kimathi Street in this picture taken on June 8, 2021.

| Jeff Angote | Nation Media Group

Relief at the pump in sight as MPs propose changes

What you need to know:

  • MPs proposed a reduction of the levy, which is charged at Sh5.4 on petrol and diesel to Sh2.9.
  • The lawmakers also proposed a reduction of VAT from 8 per cent to 4 per cent.

Kenyans could enjoy up to Sh10.49 per litre reduction on fuel if the recommendations by a parliamentary committee are adopted by the lawmakers.

MPs yesterday started debating a report of the Finance and Planning Committee that recommends a raft of tax cuts that could provide relief to the public on fuel prices.

Consumers will pay Sh10.49 less on petrol, Sh9.78 on diesel and Sh7.11 on kerosene after MPs reduced Value Added Tax (VAT), Petroleum Development Levy (PDL) and margins of oil marketing companies in a move that will ease the burden of the high cost of living. 

In the report, MPs proposed a reduction of the levy, which is charged at Sh5.4 on petrol and diesel to Sh2.9 after revoking the Petroleum Development Levy Order, 2020, and amending the Petroleum Development Fund Act, 1991, to provide the amount that will be charged for the levy. 

The lawmakers also proposed a reduction of VAT from 8 per cent to 4 per cent, which has in effect reduced the cost of the product by Sh4.99 per litre of petrol, Sh4.28 on diesel and Sh4.1 on kerosene. 

Through the amendment of the Value Added Tax Act, changing the rate of the tax on petroleum products, the MPs reduced VAT from Sh9.98 on petrol, Sh8.56 on diesel and Sh8.21 on kerosene charged during the September-October pricing cycle. 

VAT on fuel was introduced by the Act, but its implementation was deferred by three years until 2016, and another two-year extension given through the Finance Act, 2016.The Finance Act, 2018 pegged VAT on fuel at 8 per cent. 

Reduce cost of petrol

MPs have also slashed the VAT rate on liquefied petroleum gas (LPG), or cooking gas, from the current 16 per cent to 8 per cent. 

Currently, a 13kg cylinder of cooking gas has averaged at Sh2,700 while the 6kg goes for Sh1,300, putting further pressure on households already heaving under increased cost of cooking substitutes including kerosene and charcoal. 

Meanwhile, the MPs also dug into the pockets of oil marketers by cutting Sh3 per litre through amendment of the Energy (Petroleum Pricing) Regulations, 2010. 

The lawmakers also amended the Petroleum Act, 2019, by inserting the Third Schedule to the Energy (Petroleum Pricing) Regulations, 2010. 

This has seen the oil marketers’ margin pegged at Sh9.39 from Sh12.39 for petrol and Sh9.36 from Sh12.36 for both diesel and kerosene. 

This will reduce the cost of petrol to at least Sh124.23 from Sh134.72, Sh105.82 from Sh115.6 for diesel and Sh103.71 from Sh110.82 for kerosene, pending changes in the landed cost and storage and distribution charges. 

In the report, MPs have also handed consumers a reprieve from the annual October review of Excise duty on fuel by the Kenya Revenue Authority (KRA) to adjust for inflation by amending the Excise Duty Act, 2015, to make the adjustment be done every two years. 

Through the amendment, the MPs, who waived the inflation adjustment for this year, will also have the last word on the biannual excise duty review by the taxman after making it mandatory for the review to be approved by Parliament. 

High cost of living 

KRA’s move to raise excise duty on fuel by 4.97 per cent beginning October 1, in line with inflation for the previous 12-month period was thwarted after the High Court suspended the increase, citing the high cost of living. 

This means Kenyans will continue to pay excise duty at Sh21.95 on petrol and Sh11.37 on diesel and kerosene until the next review that is set for 2023. 

Excise duty is one of the largest contributors to the taxman’s revenue from fuel, netting the exchequer Sh79.3 billion in the year to June, an increase from collections of Sh65 billion in 2020 and Sh63.8 billion in the previous year due to a rise in fuel consumption and revision of the duty. 

MPs also amended the fuel pricing formula to make demurrage charges a standalone factor in the calculation of prices. Currently, the demurrage charge is factored in the landing costs.

The report notes that the demurrage charge is currently included in the fuel price formula since the country has only one terminal -- the Kipevu Oil Terminal -- which can only discharge fuel from one ship at a time. 

Kenyans pay at least Sh4.5 million a day in demurrage charges for any delay of a ship that docks at the Port of Mombasa waiting to discharge fuel.  

Between the January and August, taxpayers have so far paid Sh1.3 billion demurrage for the vessels at the port.

Note:The change in VAT and PDL could vary from the above figures. Calculated as percentages as opposed to an absolute figure, the two taxes change alongside those of the landed cost of fuel. 


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