Tax boom for government as fuel price hike hands KRA an extra Sh1.5 billion

Every time there is a fuel price increase, it is the taxman that smiles the broadest.

This is because as the fuel price formula caps the maximum profits oil marketers and other players in the sector make regardless of the price per litre, the taxman collects more taxes on higher prices of fuel than on cheaper fuel.

Last week’s jump in fuel prices has handed the government more taxes on every litre of fuel bought at the pump, making it the biggest beneficiary of the fuel price review.

This will see the Kenya Revenue Authority (KRA) net more money on every litre of fuel you buy today than it did one year ago, even without any increase in the rate of taxation.

A one-year analysis on the fuel price shows that in September last year, the taxman was collecting Sh54.26 in total as taxes and levies on every litre of petrol sold, Sh43.38 on diesel and Sh37.27 on kerosene.

This amount has now increased by between 7 and 10 per cent, without the government having to increase the tax rate. This translates to an extra Sh4.5 per litre of petrol sold, Sh3.08 per litre of diesel and Sh3.87 per litre of kerosene. 

Levies

To put this into perspective, in September last year, a litre of fuel was attracting Value Added Tax (VAT) of Sh7.81 per litre of petrol, Sh7 for diesel and Sh6.16 for Kerosene.

KRA is now collecting Sh9.98 per litre of petrol in VAT, Sh8.56 per litre of diesel and Sh8.21 per litre of kerosene.

Read: Arati demands suspension of VAT Act in bid to lower fuel costs

With Kenya consuming more than half a billion litres of fuel every month, this translates to at least an extra Sh1.5 billion more in taxes every month.

Kenya imposes at least nine different taxes on fuel, which end up doubling the price of the commodity at the pump.

-Some of the taxes are excise duty, road maintenance levy, petroleum development levy, petroleum regulatory levy and railway development levy.

The others are anti-adulteration levy, merchant shipping levy, import declaration fee and VAT.

As the taxman makes more money, the oil marketing companies will retain their margins at Sh12.39 per litre of petrol, Sh12.36 per litre of diesel and Sh12.36 for every litre of kerosene. This is the same amount they were making last year.

The Energy and Petroleum Regulatory Authority (Epra) last week set in motion an increase in fuel prices and the cost of living after it failed to receive monies from the stabilisation fund to cushion consumers.

This saw the price of super petrol jump by Sh7.58, diesel by Sh7.94 and kerosene by Sh12.97.

Super petrol is now retailing at Sh134.72 per litre in Nairobi, diesel at Sh115.60, while a litre of kerosene now costs Sh110.82.

Cost of living

This comes at a time consumers are bracing themselves to dig deeper in the pocket for every-day items.

The current fuel prices have reignited a national debate on the cost of living.

Members of Parliament, who, ironically, approved the taxes on fuel as well as being the ones who make regulations that guide the sector, are now up in arms, protesting the current prices.

The Kenya Association of Manufacturers (KAM) says taxes and levies constitute about 46 per cent of the retail prices for fuel, with excise tax forming the largest portion.

“With pump prices already at high historical levels, the proposed annual inflation adjustment on excise duty charged on fuel will aggravate the predicament facing the manufacturing industry in Kenya,” Ms Phyllis Wakiaga, the KAM chief executive, said in a statement.

Impact on consumers

It also added that the proposed inflation adjustments on excisable goods will impact consumers, since prices will hit unsustainably high levels.

This would force manufacturers to restructure or downsize businesses to stay afloat, which will lead to massive job losses along the extensive supply chains that they support.

“Currently, excise rates are five times more in Kenya as compared to Tanzania and Uganda.

“Therefore, Kenyan excisable goods will continue being uncompetitive, with higher levels of illicit trade that deny government revenue through tax evasion,” KAM said.

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