MPs Approve Fuel Levy: Brace for Soaring Fuel Costs
Wednesday, June 21, 272 members of the National Assembly voted to increase the Value-Added-Tax (VAT) on fuel from 8% to 16%. This means that Kenyans will have to dig deeper into their pockets.
The additional 8% VAT on petroleum products will have a significant impact, particularly on the price per liter of fuel, national revenue, and the price of essential household goods.
Following parliamentary approval of the increase, there is no doubt that gasoline, diesel, and kerosene prices will rise significantly across the nation.
The additional 8%, or Ksh14,592, will be added to the current price of gasoline in price ratio settings, assuming that other factors of supply and demand remain constant.
Taking into account the other factors that the Energy and Petroleum Regulatory Authority must consider when setting new fuel prices, the retail price of gasoline in Nairobi is expected to rise to Ksh196.992 by July 2023.
Diesel, which currently costs Ksh167.28 per liter, will increase by 8% (Ksh13.3824) to approximately Ksh180.6624 per liter at fuel stations in Nairobi.
The price of kerosene in the capital city will increase by 8% (Ksh12.9184) to Ksh174.3984 from its current price of Ksh161.48.
The 8% increase in the value-added tax would disproportionately impact low-income households, which spend a greater proportion of their income on fuel.
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Benefits to State
However, the increase in value-added tax (VAT) on petroleum products is crucial to the government’s ability to generate additional revenue (estimated at Ksh50 billion), which the Head of State revealed will be used for the rehabilitation of roads.
Additionally, the President seeks to encourage the use of public transportation over private vehicles, which would reduce traffic congestion and environmental pollution.
It is also anticipated that the increase will make Kenya’s fuel prices more competitive with those of other nations, thereby attracting foreign investment.
The impact of the increase in VAT on EPRA regulations will depend on several factors, including the magnitude of the increase, the economic climate, and the government’s use of the additional revenue.
If the increase is modest and the economy is robust, the adverse effects will likely be minimal. Nonetheless, if the increase is substantial or the economy is weak, the negative effects could be substantial.
It is important to note that the increase in the value-added tax is only one of several factors that could affect the price of fuel in Kenya.
Other variables, such as the global price of oil and the exchange rate, may also have a substantial effect.
To reduce the cost of living, President William Ruto has pledged to eliminate the 3.5% road development levy, the 2% Import Declaration Fee (IDF), and the 8% VAT on gas.
MPs Approve Fuel Levy: Brace for Soaring Fuel Costs
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