Breakdown of increase in fuel prices in Kenya.

Fuel prices
Courtesy of The Star

In exactly two weeks from today, the Energy and Petroleum Regulatory Authority is set to announce new fuel prices as has been its monthly norm since 2010.

To breakdown the complex formula that determines how much consumers are charged for a litre of petrol, diesel or kerosene one must consider four main elements, that is; the landed cost, taxes and levies, storage and transport charges and a dealers’ margin

Of the four, taxes and levies account for the largest component hence the most constant, in that relation, consumers are assured to pay this component on every litre of fuel regardless of the behavior of the international crude prices; this leads to a permanent barrier to cheaper fuel.

In every litre of petroleum products, is a total of seven levies and two taxes that is charged on consumers pockets.

The Tax Laws (Amendment) Act, 2020, that came into force on April 25th 2020, brought in the use of excise duty and all other levies in computing Value Added Tax creating a tax on tax.

This law was factored into the fuel prices in the May/June period and it includes taxes and levies as part of the vatable base of petroleum products.

Let’s take a close look at the most recent fuel prices; we get to see that taxes and levies make more than half the percentage on the sh 105.43 per litre charged on motorists for a litre of petrol; with both diesel and kerosene having a percentage close to 50 percent.

Now let us add a road maintenance levy of sh 18 for each litre of petrol and diesel, a petroleum development levy that is sh 5.40 per litre on all the motor fuel and sh 0.4) for a litre on kerosene, a petroleum regulatory levy that is sh 0.055 per litre on all the three petroleum products, as well as a railway development levy that takes up sh 0.67, on every litre of motor fuel and 10 cents less on kerosene and let’s not forget an anti-adulteration levy and a Merchant Shipping Levy that charges sh 18 and sh 0.3 per litre respectively on each petroleum product

The products are still subjected to excise duty which accounts for roughly to a fifth of the current petrol prices announced by EPRA leading diesel and kerosene consumers to part with sh 10.84 pe litre in excise tax alone.

Excise tax is then combined with al the other levies to come up with the controversial VAT that was introduced in September 2018.

Analysts attribute the move to target fuel for taxation is driven by the continuously growing demand of the commodity since the economy continues to grow leading to more people purchasing cars.

Audit and tax advisory service firm Grant Thornton Kenya Director Samuel Mwaura said the government is keen to continue profiting from the commodity due to its potential to grow in consumption as the country’s economy bulges.

“The government would like to milk maximum benefit for any product whose demand is on the rise or whose consumption is not extremely affected by the situation of the economy like fuel and airtime. That is why they have even gone ahead to put tax on another tax for such products, ”said Mr. Mwaura

The petroleum products land in Mombasa at just sh.35 per litre of petrol and diesel but the taxes and levies significantly push the prices to above sh 100 per litre for petrol and sh 95 per litre for diesel.

The fuel taxes affect many Kenyans including the 1.7 million households that still depend on kerosene to cook according to the latest data.

This means that none is spared in the government’s continued hunt for taxes from petroleum products.

In the Kenya Civil Society Platform on Oil and Gas analysis of the July pump prices; it shows that the continued pain from taxes on fuel is likely to worsen the economic situation for many Kenyan households.

“It is unethical that during a pandemic the government would adopt policies that would only serve to widen inequality within the country,” said KCSPOG Coordinator Charles Wanguhu in the analysis criticizing the fuel pricing regime.

According to the Kenya National Bureau of Statistics transport, which is the third weightiest factor after food and Housing, water and electricity in measuring inflation, significantly changed in August despite inflation staying at 4.36 percent; unchanged from July.