If Parliament adopts the Ruto administration’s proposal to quadruple Value Added Tax (VAT) on fuel, pump prices will nearly exceed Sh200 per litre, making Kenya the most expensive country in the region.
After the increased taxes, a litre of Super will increase by Sh13.51 to Sh196.21, while diesel will increase by Sh12.40 to Sh180.88 if MPs follow the provision in the Finance Bill to quadruple VAT to 16 per cent.
A litre of super is currently retailing at Sh182.70 and that of diesel at Sh168.40 in Nairobi, an increase of Sh3:40 and Sh6:40 in the new prices announced on Monday. The prices, which are the highest since Kenya started regulating pump prices, will most definitely trigger inflationary pressure as manufacturers and service providers factor in the increased fuel costs.
The worst is however yet to come.
President William Ruto defended the idea to double the VAT on fuel on Sunday, claiming that Kenyans pay lower taxes than similar economies and that higher levies will give much-needed funds to fund development initiatives including road construction.
“We are not overtaxing ourselves. But to balance it out, as we add eight per cent on the same fuel, I have removed the Railway Development Levy (two per cent) and Import Declaration Fee (3.5 per cent),” Ruto said on Sunday evening.
“To further balance it out I have removed the eight per cent VAT on gas and other taxes to try and even the budget.”
Customers are already paying Sh182.70 per litre of Super, Sh168.40 for diesel, and Sh161.13 for a litre of kerosene, the highest prices in Kenya since the State began regulating pump prices.
A review of the Budget Bill, 2023 reveals that the sole fuel exempt from the Import Declaration Fee (IDF) and Railway Development Levy (RDL) is liquefied petroleum gas (LPG).
Because fuel costs have a big impact on the cost of products and services in Kenya’s diesel-run economy, the doubling of VAT will cause Kenya’s pump prices to drift further away from the rest of the region, adding misery to customers.
Kenyans are already battling with high living costs, which will worsen if Parliament approves the proposal to double VAT. Energy and transportation costs are heavily weighted in the basket of goods and services used to calculate inflation in the country.
Electricity and manufactured goods producers are also expected to factor in the rising cost of petroleum.
