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Gas prices to hit 6-year high today on new tax


Economy

Gas prices to hit 6-year high today on new tax


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LPG vendor in Nyeri. FILE PHOTO | NMG

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Summary

  • The Kenya Revenue Authority (KRA) said it would impose the 16 percent tax at the start of the new financial year in what is set to push the commodity out of the reach of most households.
  • Cooking gas prices haven’t changed much over the past year despite the volatility in the global crude oil.

Cooking gas prices will today hit a six-year high after the Treasury reintroduced a 16 percent value added tax (VAT) on the commodity, adding to the pain of costly energy like fuel and electricity.

Households will pay at least Sh350 more for the 13-kilogramme cooking gas that is expected to retail at Sh2,600 on average — a price level last seen in March 2015.

This is line with the Finance Act that reinstated VAT on liquefied petroleum gas (LPG), but delayed the levy for one year to July due to concerns about the cost of living.

The Kenya Revenue Authority (KRA) said it would impose the 16 percent tax at the start of the new financial year in what is set to push the commodity out of the reach of most households struggling with depressed incomes.

“The effective date of the amendment is 1st July 2021. This means that the supply of liquefied petroleum gas will be subject to VAT at standard rate of 16 percent from 1st July, 2021,” the KRA said in an email response to the Business Daily.

The new tax comes at a time when crude oil prices have hit new highs, piling further pressure on LPG costs.

Expensive cooking gas will add to rising energy prices that have become a political headache for the government, which has in the past three months been forced to offer fuel subsidies to defuse public outrage over a monthly review that would have pushed costs to a historic high.

Yesterday, inflation rose to a 16-month high of to 6.32 percent on costly fuel, food and electricity in a period when employers, including the government, have frozen wage increases.

“We must remit a 16 percent VAT for every cylinder sold or refilled. It is natural that we will pass the added cost to consumers,” said Martin Chomba, the chair of Petroleum Outlets Association of Kenya.

Cooking gas prices haven’t changed much over the past year despite the volatility in the global crude oil market during the period when petrol prices oscillated between a low of Sh89.10 a litre in June last year to the current high of Sh127.98.

Kenyan households have since June 2016 been enjoying low cooking gas prices after the Treasury scrapped the tax on LPG to cut costs and boost uptake among the poor who rely on dirty kerosene and charcoal for cooking.

Prices for the 13-kilogramme cooking gas fell to below of Sh2,000 in October 2016 after the Treasury scrapped the 16 percent VAT.

The LPG prices are not controlled unlike other petroleum products and the new tax will fuel fears that dealers could exploit the market forces to their advantage, even as international crude prices continue to rise.

The energy regulator in 2010 started controlling prices for diesel, petrol and kerosene to cushion consumers from high prices, blamed on cartel-like behaviour among dealers.

Cooking gas was left to the market forces of supply and demand.

The rise in the cost of cooking gas is expected to pile pressure on families that are struggling to foot daily bills due to job losses and drastic cuts in earnings in the wake of the coronavirus pandemic.

Dealers reckon that a jump of Sh350 on LPG prices will be the biggest in more than two decades.

Kenyans on social media have recently raised concern over reduced cash flow, fewer employment opportunities and mounting public debt, which triggered a petition to the International Monetary Fund (IMF) to stop giving the country more loans.

The petition from the Kenyans on Twitter came days after the IMF approved a $2.34 billion (Sh250 billion) loan on April 2 to help the country respond to the Covid-19 pandemic and address its debt vulnerabilities.

Kenya was hit hard at the onset of the pandemic, but its economy has been picking up after posting a slight contraction of 0.1 percent in 2020, the IMF said.

The return of VAT on cooking gas comes despite attempts by a section of lawmakers and industry lobby, Petroleum Institute of East Africa (PIEA), to push for its delay.

National Assembly Speaker Justin Muturi last week backed the House committee that had rejected proposal to delay the tax, saying it would derail the revenue collections and hurt financing of development projects in the year to next June.

“The proposals would have far-reaching implications on revenue collection and would greatly affect the implementation of the national budget,” Mr Muturi ruled last Thursday when Parliament debated and voted on the Finance Bill, 2021.

Dagoretti South MP John Kiarie had proposed to delay the imposition of the 16 percent VAT on cooking gas to July 1, 2024 and consumers struggling with the financial hardships of the coronavirus.



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