More Pain for Kenyan Motorists in Mid-cycle Price Increase

Friday, October 02, 2020

A petrol station attendant fuels a vehicle at Total Kimathi Street in Nairobi on May 14, 2020. 

Nation Media Group

By Edwin Okoth & Hillary Kimuyu

What you need to know:

This comes barely two weeks after the petrol price was adjusted upwards by Sh1.48 to retail at Sh104.43 in the September review.

The mid-cycle revision means petrol will have climbed Sh2 per litre within the September-October pricing cycle. 

Epra made the adjustments after the Kenya Revenue Authority (KRA) used the average inflation to revise the excise duty for various goods, including fuel.

Motorists will, from Saturday, pay higher for a litre of petrol and diesel as the Energy and Petroleum Regulatory Authority (Epra) has adjusted the prices to factor in annual inflation.

In Nairobi, super petrol will retail at Sh106.55 up from Sh105.43, diesel at Sh95.09 from Sh94.51 and kerosene at Sh83.73 from Sh83.15.

This comes barely two weeks after the petrol price was adjusted upwards by Sh1.48 to retail at Sh104.43 in the September review.

The mid-cycle revision means petrol prices will have climbed Sh2 per litre within the September-October pricing cycle.

The prices of diesel and kerosene were Friday increased Sh0.58 per litre to retail at Sh95.09 and Sh83.73 respectively, reversing the marginal relief for diesel consumers offered in the September 14 pricing.

In Mombasa, a litre of super petrol will now cost Sh104.18, diesel Sh92.73 and kerosene Sh81.37, while in Kisumu, the products will cost Sh107.18, Sh95.94 and Sh84.60, respectively.

In Nakuru, motorists will pay Sh106.26 for a litre of super petrol and ShSh95.02 and Sh83.69 for diesel and kerosene, respectively.

KRA adjustment

Epra made the adjustments after the Kenya Revenue Authority (KRA) used the average inflation to revise the excise duty for various goods, including fuel.

"Pursuant to Legal Notice No. 194 of 2020, the Kenya Revenue Authority has adjusted upwards the excise duty on super petrol, diesel and kerosene after taking into account the average inflation rate of 4.94 per cent for the financial year 2019/2020,” the regulator said.

“Accordingly, taking into account the revised excise duty rates, [Epra] has recalculated the maximum wholesale and retail pump prices that will be in force from October 3 - 14.”

The inflation adjustment tax was introduced in 2018 and is seen as a means of protecting the government’s spending power from erosion, by raising the cost of living and avoiding the need to seek parliament's approval for higher retail prices.

The law, which allows KRA to increase taxes of more than 30 products, was, however, amended in June, forcing the taxman to seek Treasury and Parliament’s approval before an increment but this will only be possible after January 1, 2021.

An increase in prices of products, including those with heavy influence on the economy like fuel, will further raise the cost of living for millions of consumers who have been affected by the pressures from the pandemic-driven economic slump.

Treasury’s approval

In August, KRA issued a legal notice alerting traders and consumers of the impending inflation adjustment.

“The Commissioner-General will adjust the rates of excise duty using the average inflation rate for the financial year 2019/2020, as determined by the Kenya National Bureau of Statistics. The adjusted rates will be effective from 1st October 2020,” KRA Commissioner-General Githii Mburu said.

From January though, KRA will be required to seek the approval of the Treasury Cabinet Secretary before making the specific excise rate adjustment.

Thereafter, the legal notice will be taken to Parliament within seven days of publication for consideration.

Parliament will, within 28 sitting days of receiving the notice, decide whether to approve or reject the inflation adjustment under changes to the law.

Taxes and levies make the largest component of prices for fuel in Kenya and the least flexible, meaning consumers can expect to pay this component on every litre of fuel, no matter how the international crude prices behave; forming a permanent barrier to cheaper fuel.

Motorists pay seven levies and two taxes for each litre of petroleum product they purchase.

Tax on tax

There is even tax on tax after the Tax Laws (Amendment) Act, 2020 prescribed the use of excise duty (a tax) and all the other levies in computing Value Added Tax (VAT).

The new law, which came into force on April 25 and was factored into the fuel prices in the May/June period, includes taxes and levies as part of the vatable base of petroleum products. Upon its enforcement, the contribution of taxes and levies to retail.

The taxes and levies make more than half the total price charged on motorists for a litre of petrol and the proportion of tax for both diesel and Kerosene are equally close to 50 percent.

There are a road maintenance levy of Sh18 for each litre of petrol and diesel, a petroleum development levy (Sh5.40 per litre on all the moto fuel) and a Sh0.40 for a liter on kerosene, petroleum regulatory levy (Sh0.05 per litre on all the three petroleum products.

There is also a railway development levy Sh0.68 on every litre of motor fuel and ten cents less on kerosene, which is also leaded with another Sh18 per litre of the anti-adulteration levy, as well as the merchant shipping levy of Sh0.3 per litre of each petroleum product.

That is not all. The products are then subjected to excise duty, which accounts for close to a fifth of the petrol prices announced by Epra. Diesel and kerosene consumers were charged Sh10.84 per litre in excise tax alone.

The excise tax is then used together with all the other levies to compute VAT, which was controversially introduced in September 2018.

edokoth@ke.nationmedia.com and hkimuyu@ke.nationmedia.com