Taxes in the price of a litre of fuel now cross 40pc mark
Director General of Epra, Daniel Kiptoo speaks during a Media Roundtable meeting held by the regulator on May 23, 2024, at Sarova PanAfric Hotel in Nairobi.Â
Photo credit: File | Billy Ogada | Nation Media Group
Taxes and levies in the pricing of a litre of fuel have crossed the 40 percent mark, underscoring the heavy taxation that has kept pump prices high in Kenya despite big drops in global costs and a strengthening shilling.
In the monthly pricing cycle set last Friday, taxes and levies account for 40.1 percent for the price of a litre of super petrol, 36.37 percent for a similar quantity of diesel, and 34.67 percent for that of a litre of kerosene.
The share of taxes and levies in the cost per litre of fuel has mostly ranged from 31 percent to 38 percent, with the portion being highest in super petrol and lowest in kerosene. Taxes in a litre of fuel are constant but other cost elements such as crude prices vary, which means that the share of levy in the price matrix may rise even without changes to the tax.
Motorists are paying Sh189.84 for every litre of super petrol, with Sh76.20 being taxes and levies. Of the Sh173.10 consumers are paying for a litre of diesel, Sh62.97 is going to taxes and levies.
Kenya charges seven levies and two taxes on fuel, with the heavy taxation being blamed for denying consumers bigger price cuts despite the big drops in global costs of refined fuel and a strengthening shilling to the dollar.
President William Ruto last year defended the heavy taxation on fuel, saying that Kenya lags behind most other economies in taxes. For example, prices of the fuel cargoes that the Energy and Petroleum Regulatory Authority (Epra) used to set the current prices, global prices of diesel fell by 7.7 percent to $680.20 per barrel while those of super petrol dropped by 8.35 percent to $849.52 per barrel.
The shilling also rallied to exchange at 132.72 units to the dollar last month, compared to 134.63 in April thus lowering the cost of imports, including fuel.
The heavy taxation on fuel denied consumers further drops in local pump prices anticipated from the combination of the strong shilling and global drop in costs of refined fuel.
Value Added Tax (VAT) at the rate of 16 percent, excise duty, road maintenance levy, petroleum development levy (PDL), import declaration fee, and railway development levy are the leading taxes on fuel. Others are the anti-adulteration levy, merchant shipping levy, and petroleum regulatory levy.
Parliament passed legal changes that doubled VAT from 8.0 percent in July last year, sending pump prices to record highs. The doubling of VAT came two years after Parliament rejected a recommendation by one of its committees to lower PDL to Sh2.50 per litre of fuel and reduce the then 8.0 percent VAT on petroleum products to 4.0 percent.
While the heavy taxes have hurt consumers and denied them bigger price drops at the pump, the Kenya Revenue Authority (KRA) has reaped big. For example, the KRA collected an estimated Sh25.9 billion more through fuel taxes between July and December last year, with collections hitting Sh164.03 billion.
The Treasury and Ministry of Energy are tasked with developing favourable taxation policies on fuel and passing the proposals to Parliament for adoption. The three key agencies are on the spot, with Kenya way ahead of other economies globally in terms of heavily taxing fuel.
