Why govt will slap you with Ksh.60 tax on each litre of fuel

The cost of basic goods and matatu fares could go up from Saturday next week if the government goes ahead to slap a 16 per cent Value Added Tax on petroleum products.

Energy Regulatory Commission (ERC) Director General Pavel Oimeke on Thursday told MPs that the tax will be implemented unless they amend a 2013 law that put it in place.

“We as a commission also have an obligation to obey existing laws. So we will implement if there is no change in the current VAT Act or Finance Bill being prepared by parliament,” said the ERC boss.

The law has been continuously suspended to date, but that window is closing.

The International Monetary Fund has been piling pressure on the government to end the suspension and raise its revenues and reduce budget deficits while slowing down spiraling debt.

Despite the pressure to introduce the tax, fuel products are part of Kenya’s most taxed commodities.

On landing at the port of Mombasa, a litre of Super Petrol is priced at Ksh.57.53. Storage and distribution charges amounting to Ksh.4.41 are added to this figure, while a profit margin for importers is set at Ksh.7 a litre. Dealers have a margin of Ksh.3.89.

Under taxes and government levies, a total of Ksh.39.37 is collected from every litre of petrol purchased. This comprising Ksh.19.90 in excise duty, Ksh.18 for road maintenance, 65 cents for petroleum development and regulation while 82 cents are charged on every litre for development of railway network.

Due to these charges, the cost of a litre that cost just over Ksh.57 appreciates to the current price of Ksh.112.20 in Nairobi.

With the looming VAT charge starting next week on Saturday, September 1 the price of petrol is likely to rise by at least Ksh.12.38, bringing the total cost to more than more than Ksh.120.

This will mean that government levies and additional cost will account for at least 53 percent of the cost to Kenyans.

For diesel, a VAT charge of Ksh.10.99 will push a litre’s price to Ksh.114 while the price of a litre of kerosene will rise to over Ksh.96.

This burden will ultimately be transferred to Kenyans who will have to pay more for bus fare, food and other products due to a rise in the cost of transport.