Bill exempts fuel from excise duty review, halves VAT to control prices

Fuel will be exempt from the annual inflation tax review, while two levies on diesel and gasoline will be cut in half if Parliament adopts proposed changes to the law aimed at lowering pump prices.

The National Assembly’s Finance and National Planning committee says fuel should be exempt from the annual adjustment and the Value Added Tax (VAT) on petroleum products reduced from eight to four percent.

Proposals in the 2021 Petroleum Products (Taxes and Levies) (Amendment) Bill will also cut the levy that motorists pay to support a fuel subsidy scheme from Sh5.40 per liter to Sh2.90.

The bill to be introduced in Parliament seeks to lower the price of diesel, gasoline and kerosene amid public uproar after pump prices hit record highs in the monthly review ending tonight.

“The following taxes and levies charged on fuel will be amended as follows, reduce the Petroleum Development Tax charged to super gasoline and diesel from Sh5.40 to Sh2.90 and reduce VAT from eight percent to four percent, ”says the bill.

In the expiring monthly review, gasoline prices rose by Sh7.58 to Sh134.72 in Nairobi, while diesel rose Sh7.94 to Sh115.6 per liter, prompting public outrage that led Parliament to start a review of fuel taxes.

VAT represents Sh9.98 per liter of super gasoline and Sh8.56 per liter of diesel, the second largest tax on fuel after excise duties and road maintenance.

Fuel is one of more than 31 products, including beer, juice and bottled water, that are subject to the inflation adjustment tax each year, a revision that raises their prices.

This year’s inflation adjustment would have increased the price of super gasoline by Sh1.09, while diesel prices increased by Sh0.566 per liter. But the High Court suspended the excise tax increase following a public petition.

The proposed changes to the law will exempt gasoline, diesel, and kerosene from products subject to excise duty under the Excise Act of 2015.

The inflation adjustment tax was introduced in 2018 and is seen as a means of protecting the government’s purchasing power from erosion by rising cost of living and avoiding seeking the go-ahead from MPs at higher retail prices.