Kenyans get raw deal in fuel prices

The price of fuel ought to retail at a minimum Sh168 for super petrol and Sh151 for diesel if the government obeyed court orders.

While releasing the prices for August 14 to September 14 the Energy Regulatory Authority (Epra) said the prices will remain at the current pump rates of Sh188 for Super petrol and Sh171 for diesel.

The Court of Appeal on July 31, in the case of National Assembly & Another v Okiya Omtatah Okoiti & 55 Others (Judgment), declared the entire Finance Act, 2023 (Finance Act) unconstitutional. It is this bill that pushed the VAT rate of fuel from 8 per cent to 16 per cent. A reversal of the same should have been reflected on the new rates.

In a separate case, the Mombasa High Court yesterday declared the recent increase of the Road Fuel Levy from Sh18 to Sh25 unconstitutional. This rate too is still factored in the cost of fuel for the next one month.

However, instead of abiding by the decisions of the court the government announced it will continue subsidising petroleum pump prices over the next one month. This move, they said, saw the retail prices remain unchanged in the latest maximum petroleum pump prices published by Epra Wednesday.

Digging into public coffers to stabilise fuel prices is despite the government’s continued push for higher taxes from fuel. In the prices published by Epra this week, the regulator had retained value-added tax (VAT) at 16 per cent despite the Court of Appeal ruling that the law that doubled VAT on fuel from eight per cent was unconstitutional. 

Last month, the Transport Ministry also increased the Road Maintenance Levy to Sh25 from Sh18 per litre of super petrol and diesel, dashing hopes of lower fuel prices in the country. 

Old prices

Over the next one month, super petrol will continue retailing at Sh188.84 per litre in Nairobi. Diesel will retail at Sh171.60 while kerosene will go for Sh161.75. Super petrol will get a subsidy of Sh3.40, diesel Sh5.20 and kerosene Sh3.83 per litre.

This would translate to spending about Sh400 million over the next one month in subsidising super petrol going by the average monthly consumption of 120 million litres and Sh900 million subsidising diesel whose monthly consumption stands at about 180 million litres.

The subsidies are despite the push for higher taxes even in instances the court has ruled otherwise. 

Industry players had noted that reducing VAT to eight per cent would have a significant impact on pump prices. Halving VAT on fuel could have knocked off more than Sh10 off the retail price of super petrol.

VAT currently stands at Sh26 per litre of petrol and Sh23 per litre of diesel.

“In the period under review, the maximum allowed petroleum pump price for super petrol, diesel and kerosene remain unchanged... The prices are inclusive of 16 per cent VAT in line with provisions of the Finance Act, 2023,” said Epra in their statement on Wednesday.

The Act, which came into force in July last year had increased the cost of petroleum products by doubling VAT to 16 per cent from the earlier eight per cent.

The government appealed the decision at the Supreme Court and had also requested a stay order as the case was heard and determined but the Court rejected National Treasury’s plea.

A stay order would have meant that the government would continue collecting taxes introduced by the Finance Act, 2023, including VAT on fuel at 16 per cent.

The rejection of the plea has since thrown taxpayers into confusion following the failure of KRA to align its systems with the ruling.

The Federation of Kenya Employers last week noted that KRA had not adjusted its tax systems to reflect the ruling by the Court of Appeal, adding that this had its members and other taxpayers are unable to remit taxes “in accordance with the judgement for reason that the KRA has not yet configured its systems to comply with the Court of Appeal judgement.”

The Petroleum Outlets Association of Kenya (Poak) earlier yesterday noted that the industry is “keen to see the revision of the VAT from 16 per cent to eight per cent.”

This, the lobby for small and mid-sized oil marketers in the country had noted, would “reduce the pump prices significantly”.

Yesterday’s price capping guide is the second since the substantial hike in the Road Maintenance Levy.

Road levy increase

The Transport Ministry in July, just days before Epra announced fuel prices for the July-August cycle, increased the levy by Sh7 to Sh25 from Sh18.

The levy is used by road agencies to undertake repairs of roads across the country.

Kenyans have protested that the levy was hiked without proper consultation and also without considering the plight of Kenyans who are currently grappling with the high cost of living and stagnant or reduced incomes.

Earlier in the day, the new Energy and Petroleum Cabinet Secretary Opiyo Wandayi took over the key docket, saying among his areas of priority would be to look into ways to bring down the cost of both fuel and electricity.

“We have a cardinal duty to ensure that we provide services in the energy realm that are affordable, sustainable, reliable to the people,” he said, adding he would work to systematically reduce the cost of both fuel and electricity.