Hope as MPs add Sh15bn to fuel subsidy scheme

Fueling a car

Lawmakers have moved to avert a looming economic crisis by adding the Ministry of Petroleum and Mining Sh15 billion to fund the fuel subsidy programme.

Photo credit: File | Nation Media Group

Lawmakers have moved to avert a looming economic crisis by adding the Ministry of Petroleum and Mining Sh15 billion to fund the fuel subsidy programme.

In a supplementary budget two considered by the National Assembly yesterday, the Budget and Appropriations Committee added the amount to the Sh5.1 billion it has allocated for fuel subsidy bringing the cumulative figure to Sh20.5 billion. The aim of the programme is to prevent fuel prices from rising beyond levels that would worsen inflation.

The amount had been slashed by 84 per cent from Sh31.7 billion, with MPs on Monday complaining that it would trigger an economic crisis. Committee Chairman Kanini Kega Tuesday said this was to cushion Kenyans against the high cost of living.

“If we don’t subsidise fuel, then we are not addressing the high cost of living many Kenyans are facing,” Mr Kega said.

Proposed amendment

This followed calls by Deputy President William Ruto’s allies on the Finance Committee to include proposals of the Petroleum Products tax Amendment Bill in the Finance Bill to holistically address high commodity prices.

In a proposed amendment to the Appropriation Bill 2022, the committee proposed a Sh15.36 billion increase in the allocation to the fuel subsidy programme.

The Budget Committee on Monday warned that the Sh5.1 billion allocated for the next budget would be depleted within three months, exposing the economy to huge fuel prices that would raise inflation.

“It is projected that the crude oil prices are unlikely to reduce due to the ongoing Ukraine-Russia conflict, the department may end up exhausting the Sh5 billion provided for the fuel subsidisation programme in the first quarter,” the committee warned.

The Sh5 billion allocation would have proved a headache for the incoming administration, even though the main presidential contenders have outlined plans to keep fuel prices low, including through tax cuts.

Review taxes and levies

Azimio la Umoja One Kenya Coalition Party presidential candidate Raila Odinga, in his manifesto launched Monday, promised to “review the taxes and levies on petroleum products with a view of making petroleum and related commodities affordable” as well as “encouraging citizens to utilise alternative sources of energy for transport and domestic use including electric cars and solar energy.”

Taxes on fuel constitute up to 41 per cent of the cost, with a litre of petrol that’s going for Sh150.12 constituting Sh61.87 in taxes and levies, while a litre of diesel that costs Sh131 having Sh50.32 in taxes and levies. The fuel subsidy programme was introduced last April when fuel prices started soaring globally.

Funding for the programme is raised through the Petroleum Development Levy, where consumers pay Sh5.40 per litre of petrol they buy at the pump, after it was increased from Sh0.40 per litre last year. While current fuel prices in Nairobi are Sh150.12 (petrol) and Sh131 (diesel), without the subsidy, consumers would be paying up to Sh176 per litre of petrol and Sh175 for diesel, thus absorbing between 15 and 25 per cent of price shocks to protect consumers.

Passed as a motion in the House last year and later developed into a Bill, Petroleum Products Tax Amendment Bill proposes a reduction in the levy, which is charged at Sh5.4 on petrol and Sh2.9 for diesel 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.

MPs also proposed slashing VAT for or cooking gas from the current 16 per cent to eight per cent.

Since then, the Bill is yet to be considered by the House with Finance Committee chair Gladys Wanga saying they did their work and presented their findings and it’s now upon the House Business Committee to schedule the Bill for debate.