Kenyans getting a raw deal over fuel prices

If the government complies with the court order, the pump price of fuel should be at least Sh168 for super petrol and Sh151 for diesel.

The Energy Regulatory Authority (Epra), while releasing the prices for August 14 to September 14, said the prices will remain at the current level of Sh188 per barrel. Super Gasoline and Sh171 For diesel.

On July 31, the Court of Appeal in the case of National Assembly and Others v. Okiya Omtatah Okoiti and 55 others (the judgment) declared the entire Finance Bill 2023 (the Finance Bill) unconstitutional. It was this Bill that increased the VAT rate on fuel from 8% to 16%. The new rate was supposed to reflect this reversal.

In another case, the Mombasa High Court yesterday declared unconstitutional the recent increase in road fuel tax from 18 shillings to 25 shillings. The rate will still be factored into fuel costs for the next month.

However, the government did not comply with the court’s ruling and announced that it would continue to subsidize the pump price of petrol for the next month. They said this move resulted in the pump price remaining unchanged at the latest maximum petrol pump price released by Epra on Wednesday.

The government is using public funds to stabilize fuel prices despite a relentless push to increase taxes. In prices published by Epra this week, the regulator kept the value-added tax (VAT) at 16%, despite an appeals court ruling that a law doubling the VAT on fuel from 8% was unconstitutional.

Last month, the Ministry of Transport also increased road maintenance charges from Sh18 to Sh25 per litre of super petrol and diesel, dashing hopes of reducing fuel prices in the country.

Old Price

In the next month, Super Gasoline will continue to be sold at retail The retail price in Nairobi is Sh188.84 per litre. Diesel retails at Sh171.60 and kerosene at Sh161.75. Super petrol is subsidised at Sh3.40 per litre, diesel at Sh5.20 per litre and kerosene at Sh3.83 per litre.

This means that based on an average monthly consumption of 120 million litres, it will cost about Sh400 million to subsidise super petrol in the next month, and Sh900 million to subsidise diesel, which has a monthly consumption of about 180 million litres.

Despite calls for higher taxes, the government has insisted on providing subsidies despite court rulings to the contrary.

Industry insiders pointed out that reducing VAT to 8% will have a significant impact on oil prices. Halving the VAT on fuel could reduce the retail price of super petrol by more than 10 shillings.

VAT is currently 26 shillings per litre of petrol and 23 shillings per litre of diesel.

“The maximum permissible retail prices of super petrol, diesel and kerosene remain unchanged during the review period… VAT of 16% is included in the prices as per the provisions of the Finance Bill, 2023,” Epra said in a statement on Wednesday.

The bill, which came into effect in July last year, doubled the value-added tax to 16% from the previous 8%, raising the cost of petroleum products.

The government appealed the judgment in the Supreme Court and sought a stay order while the case was heard and determined, but the court rejected the National Treasury’s request.

The moratorium means the government will continue to collect taxes introduced in the 2023 Finance Bill, including the 16% VAT on fuel.

As KRA failed to adjust its system in accordance with the ruling, the request was dismissed, leaving taxpayers in confusion.

The Kenya Employers Federation last week noted that the Kenya Revenue Authority has yet to adjust its tax systems to reflect the Court of Appeal’s decision, adding that this has resulted in its members and other taxpayers “being unable to pay taxes as per the judgment because the Kenya Revenue Authority has not configured its systems to comply with the Court of Appeal’s judgment.”

The Petroleum Marketers Association of Kenya (Poak) noted earlier yesterday that the industry was “eager to see VAT revised from 16% to 8%”.

this, Small lobby and the country’s medium-sized oil marketers noted that there would be “significant reductions in oil prices.”

Yesterday’s price cap guidance was the second major increase in road maintenance charges since the start of the pandemic.

Road toll increases

In July this year, the Ministry of Transport increased fuel tax from Sh18 to Sh25, just days before the Indian Electricity Authority announced fuel prices for July-August.

Road authorities use these taxes to repair roads across the country.

Kenyans have protested that the government is raising taxes without proper consultation and without considering that Kenyans are currently struggling with high living costs and stagnant or declining incomes.

Earlier in the day, the high-profile agenda was taken over by new Energy and Petroleum Minister Opiyo Wandayi, who said one of his first tasks would be to look at ways to reduce the cost of fuel and electricity.

“We have the primary responsibility to ensure affordable, sustainable and reliable energy services for our people,” he said, adding that he would work to systematically reduce fuel and electricity costs.