Consumers are now paying more for taxes and levies than the actual product costs in a litre of petrol, bringing to sharp focus Kenya’s heavy taxation of fuel.
The latest pricing schedule per litre gazetted by the energy regulator shows that taxes and levies on petrol amount to Sh80.50, overtaking the product cost of Sh76.72.
Other items, including dealer margins, take the petrol pump price in Nairobi to Sh174.63 per litre.
This brings to focus the eight levies and taxes that the government charges per litre of petrol and diesel given that the levies have been cited as key factors behind the high costs of the commodities.
The Ministry of Energy, the National Treasury and Parliament are three key agencies at the centre of crafting and approving the taxation framework on fuel.
High taxation on fuel offers the government an easy path to growing revenues, given the mass use of fuel by the economy. The three agencies have largely ignored uproar from Kenyans over proposals to introduce new taxes or increase existing ones on fuel.
Landed costs (price of product and freight costs) for petrol dropped by 2.95 per cent per cubic metre of the commodity in the latest pricing that will be in force until June 14.
Taxes on petrol, on the other hand, remained unchanged given that they are either fixed percentages or fixed amounts for the price of a litre of the commodity.
This is the first time that levies and taxes have outweighed the actual costs of fuel in the pricing of petrol. Product costs are higher than taxes in the price per litre of diesel and kerosene.
Petroleum experts hold that there is a need for a redesign of the taxation on fuel, to ensure that short-term gains like tax collection do not deny the economy the long-term impact of cheap fuel.
“It is not the right policy design and that is why you have hue and cry form Kenyans. Trying to collect more in the form of high taxes on fuel is a myopic argument. It is better to have a moderate rate to incentivize consumption as opposed to having high taxation then introducing subsidies,” John Mutua, Programmes Coordinator at the Institute of Economic Affairs Kenya, says.
“One of the main drivers is the ease of collecting taxes, given the mass use of fuel. There is a need for a redesign of the taxation structure on fuel, but then this must be evidence-based.” Value Added Tax (VAT), which is charged at a rate of 16 percent, accounts for the biggest tax on fuel at Sh24.09 per litre of petrol, followed by the Road Maintenance Levy (RML) at Sh25 and excise duty at Sh21.95.
Besides the three, other taxes are Petroleum Development Levy, Merchant Shipping Fee, Import Declaration Fee, Railway Development Levy and Petroleum Regulatory Levy.
The high taxation on fuel has attracted public outcry, but Parliament and the relevant ministries have ignored the uproar and implemented higher rates.
For example, former Ccabinet Secretary for Transport Kipchumba Murkomen had in July last promised Kenyans that the government will only increase RML when global crude oil prices fall, in order to minimize the impact on pump prices.
“We’ll explore ways of increasing the levy without increasing the fuel prices, even if it means waiting until the petroleum prices come down.” Mr Murkomen promised Kenyans last year as outcry mounted over the push to increase RML to Sh25.
But the government backtracked on Murkomen’s word and increased RML from Sh18 per litre of petrol and diesel to Sh25, triggering a steep rise in pump prices.
Mr Mutua reckons that some of these levies like the RML are inevitable given that they directly fund roads. He however cautions that the rate should be relooked with an eye on spurring consumption which in turn can lead to higher demand and more collections.
“For some of the taxes, we can only question the rate but not the purpose, like the RML which is key in ensuring high quality roads.
The government has since July 2023 increased three taxes on fuel, leading to rises in pump prices that have triggered public uproar and led to increased cost of living.
For example, the Ministry of Roads and Parliament increased RML by Sh7 to Sh25 per litre of petrol and diesel, significantly increasing the cost of the two fuels and hitting consumers already affected by lower purchasing power.
The increase in RML came a year after VAT on fuel was doubled to 16 percent, pushing pump prices beyond the Sh200 mark for the first time in Kenya’s history.
A litre of petrol jumped to Sh211.64 while that of diesel rose to Sh200.9 from September 15, 2023 to October 14, 2023.
Petroleum Regulatory Levy was increased three times to Sh0.75 per litre of fuel in February last year from Sh0.25, marking the latest taxation onslaught on fuel. Kenya has higher taxation of fuel compared to bigger economies in the world, a situation made worse given that Kenya imports all petroleum products.
The Treasury has however not proposed to increase any taxes on fuel in the Finance Bill, 2025, breaking away from a tradition that has been employed in the past few years, triggering steep rises in cost of fuel from July.
Kenya has the most-expensive fuel in the East African region, ahead of Uganda and Tanzania, underscoring the adverse impact of the heavy taxation.
A litre of petrol is retailing at $1.35 in Nairobi ahead of the $1.32 in Kampala and $1.09 in Dodoma. Diesel is going for $1.27 in Nairobi compared to $1.26 and $1.06 in Kampala and Dodoma respectively.
