Pain for hustlers as State ends subsidy on kerosene, diesel
An attendant sells kerosene to a customer at a Nyeri petrol station. The Energy and Petroleum Regulatory Authority on Sunday announced an increase in the prices of all fuel products, with kerosene recording the highest rise.
What you need to know:
- In the latest review of fuel prices by the regulatory body, kerosene had the steepest rise at Sh5, followed by diesel and then petrol. The increase is kerosene prices is likely to push the poor to alternative sources of fuel such as charcoal and firewood while the increase in diesel prices could lead to a rise in the cost of various goods.
Poor households will feel the pinch of higher kerosene prices following the removal of subsidy on the product, raising the cost of the product by 9.4 per cent.
In the latest review of petroleum prices for the May 15 to June 14 cycle, the Energy and Petroleum Regulatory Authority (Epra) has raised the price of kerosene by Sh15.19 a litre to Sh161.13 in Nairobi.
“The subsidy on diesel and kerosene has been removed,” Epra stated in a press statement on Sunday.
The situation could worsen starting July should Parliament approve a proposal in the Finance Bill 2023 to reinstate 16 per cent Value-Added Tax (VAT) on petroleum products from the current 8 per cent.
Higher kerosene tax translates to a direct hit on poor homes that rely on it to power cooking stoves and lanterns, along with fishermen who use kerosene lamps for night-time fishing.
With prices of liquefied petroleum gas (LPG) and electricity out of reach for many poor rural households, the latest price increase for kerosene may trigger a shift to use of charcoal and firewood, with massive health and environmental implications.
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Epra also increased the price of diesel by 3.9 per cent to retail at Sh168.4 in Nairobi. Manufacturing industries and businesses in general rely heavily on diesel to run heavy machines and transport goods. Changes in diesel prices will therefore affect the prices of different goods.
Consumers of petrol will also pay about 2 per cent more, with the commodity now set to retail at Sh182.7 in Nairobi, up from Sh179.3.
The price increases have already triggered a storm among consumers and lobby groups amid concerns over the high cost of living devastating households.
“We are concerned that while we don’t support long-term subsidies, the steep rise in fuel prices will make the already bad economic outlook even worse. It will trigger unintended consequences. It should have been gradual,” Consumer Federation of Kenya Secretary-General Stephen Mutoro said in a statement.
Oil marketers have, however, welcomed the action as a relief to their financial operations, saying under the subsidy programme, the government held a lot of their cash, affecting operations.
‘Welcome move’
“Doing away with the whole subsidy regime is a very welcome move to the oil marketers. During the subsidy regime, the government had perpetually held capital that would otherwise have been used to procure products and many players had been forced to seek alternative ways of financing their business, so the cost of financing and capitalisation of outlets became a very serious issue,” said Petroleum Outlets Association of Kenya Chairperson Martin Chomba.
The government’s action leaves poor households cornered amid high LPG prices, which have increased by 31 per cent over the past two years. A promise by the government for lower prices from June also seems to be uncertain.
President William Ruto on Sunday said the promise to lower a 6kg gas cylinder from about Sh2,800 to as low as Sh300 starting June 1 would not materialize unless the Finance Bill 2023 is passed.
“At the moment there is no way to remove taxes unless through the budget. It’s not possible by June 1. We have to pass the Finance Bill in Parliament to ensure that prices come down. When we pass the budget, we will lower the price of gas cylinders to between Sh300 and Sh500,” President Ruto said.
He added that the only way households would have enjoyed lower gas cylinder prices by June—the time he promised—would be if the proposal was passed in the supplementary budget, which did not happen.
But the kerosene price problem will become even bigger if Parliament passes the Finance Bill 2023 in its current form since it proposes to raise VAT on fuel products to 16 per cent.
Seal loopholes
The President defended the proposal on Sunday, stating that the government wanted to seal loopholes that have been used to dodge the tax as a result of the discrepancy with other VAT-charged products.
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“We are going to increase VAT (on fuel products) because having differential rates—one at 8 per cent and others at 16 per cent—poses an integrity problem. People use it as a loophole to manipulate numbers on VAT in and VAT out. My economic team and Treasury advised that we must eliminate this loophole that people are exploiting,” he said.
The government expects to collect about Sh50 billion more as a result of the added tax burden, even as it relieves itself of the subsidy burden.
The President also insisted that he is not overtaxing Kenyans and gave strong indications that he plans to tax them even more as he seeks to grow the country’s tax-to-GDP ratio to 16 per cent in 2023/24.
“I have heard many people say that there is no country that can tax itself into prosperity. That is correct, but you cannot accumulate debt into bankruptcy as an option. We are not overtaxing ourselves. In fact, if we were to match our peers ... my intention is to take this slowly the way Mwai Kibaki did,” he said.
Kenyans have a history of switching to cheaper cooking fuels when faced with high prices for clean fuels.
Kenya National Bureau of Statistics (KNBS) data show that last year, as LPG prices hit record highs due to the Russia-Ukraine war that badly affected supply chains across the world, demand for LPG in the country fell by 10.1 per cent to 338,800 tonnes.
While the government, through the Finance Bill 2023, proposes to scrap the 8 per cent VAT on LPG, Kenyans have not always benefited from similar moves by way of price reductions by oil marketers, as witnessed last year when VAT on the product was lowered from 16 per cent to 8 percent.
“Domestic annual average price of illuminating kerosene recorded an increase of 27.1 per cent to Sh127.38 per litre while the average price of a 13kg cylinder of LPG rose by 31.1 per cent to Sh2,990.41 in 2022,” KNBS stated in the Economic Survey 2023.
Less than a quarter of the 12 million Kenyan households use LPG as a cooking fuel, according to the 2019 Census.
Air pollution
“Unfortunately millions of people continue to die prematurely every year from household air pollution produced by cooking with inefficient stoves and devices paired with wood, coal, charcoal, dung, crop waste and kerosene,” the World Health Organisation has said previously.
It is common to witness low-end suburbs of Nairobi stock up on alternative cooking fuels such as charcoal when the going gets tough, while in the rural areas, the cheapest alternative has always been firewood.
