Fuel Tax Hike Looms as Ruto Administration Ignites Debate on Inflation and Living Costs

by | May 9, 2023 | Business | 0 comments

In a move reminiscent of his predecessor’s failed attempt, President William Ruto has reignited the contentious issue of increasing taxes on fuel, which is set to impact the daily lives of Kenyans. As part of the Finance Bill 2023, the Ruto administration is proposing to raise the Value Added Tax (VAT) on petroleum products from 8% to 16% starting July 1. Critics argue that the hike will elevate living costs, potentially triggering higher inflation and public discontent.

The Bill is set to be championed by National Assembly Majority Leader Kimani Ichung’wah and Budget Committee Chairman Ndindi Nyoro, who notably opposed similar legislation in 2021. In a review of the Bill, audit firm KPMG cautions that the proposal may lead to increased prices for transportation and goods production, exacerbating inflationary pressure on the economy. Matatu owners, for instance, have already warned that fare hikes will be inevitable if the higher taxes are imposed on fuel.

The Ruto administration’s push to raise VAT on fuel follows a March agreement with the United Arab Emirates to import fuel on credit for up to one year to ease dollar demand pressure. This move is similar to former President Uhuru Kenyatta’s unsuccessful attempt in September 2018, which resulted in strikes, backlash, and a lawsuit after a 16% VAT on petroleum products led to a spike in fuel and transport prices.

In response to past opposition, Kenyatta had halved the VAT to 8%, arguing that additional revenue was needed to finance rising demands. At the time, MPs Kimani Ichung’wah and Ndindi Nyoro called for a reconsideration of the provision, suggesting deferral until the country began commercial oil production.

The proposed fuel tax hike contradicts President Ruto’s election pledges, which included eliminating taxes on fuel to reduce living costs. Additionally, the Ruto administration has ended the fuel subsidy program, citing a study that found the subsidy ineffective in lowering the cost of living. This decision led to a sharp 13% increase in petrol prices.

Despite concerns, the Finance Bill 2023 also brings relief to households using cooking gas. The government is proposing to exempt the 8% VAT on Liquefied Petroleum Gas (LPG), which will not only ease the burden on Kenyans but also contribute to the adoption of green energy. President Ruto has promised to reduce the price of a six-kilo gas cylinder to between Sh300 and Sh500 by June 2023.

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