KRA suffers setback as Court blocks new fuel tax


KRA Commissioner General James Mburu

By: Isaac Thuku   @MountKenyaTimes

The High Court has suspended the increase of excise duty on petroleum products effective this coming Friday, October 1.

The Kenya Revenue Authority (KRA) Commissioner General was to effect the new changes, which would have raised fuel prices again.

Judge Justice James Makau while issuing the temporary injunction yesterday, said if the interim order is not granted, Kenyans would stand prejudiced and exposed to danger amid decry of high cost of living.

Two Kenyans had petitioned the court to stop the impending decision by the taxman to increase excise duty on the products by 4.97 percent in line with average annual inflation.

The petitioners, Isaiah Odando and Wilson Yata argued that the decision would put pressure on cost of living with the Judge saying the two have a strong case with the likelihood of success.

“I find the application meets the threshold for interim orders. The petitioners have established they have a prima facie case with a likelihood of success,” the Judge said.

The duo, through their lawyer Kenneth Amondi, said the adjustment of excise duty is a burden to already overtaxed Kenyans.

“The same was devoid of proper public participation at a time when Kenyans are reeling from the economic consequences of the Covid-19 pandemic, thereby compromising the people’s entitlement to social justice,” say the duo.

In a notice on August 10, KRA commissioner general Mburu announced rates on excise duty will be adjusted using the average inflation rate for the 2020-21 financial year of 4.97 per cent.

The rate as determined by Kenya National Bureau of Statistics was until the injunction to be effective from October 1, subject to approval by the Treasury CS.

The excise duty adjustment is in line with the law that demands that it be revised upwards in tandem with the cost of living measure or the average rate of inflation in the 12 months through June.

Besides fuel products, other excisable goods which would attract higher prices from the inflation adjustment at 4.97 per cent include beer, wines & spirits, food supplements, imported motor vehicles, bottled water and cigarettes.

Further, telephone and mobile internet services which are covered under excisable services would attract greater costs on the adjustment.

KRA is for the first time required to get parliamentary approval to effect the new rates following changes to the law that came into effect last year.

The petitioners have been challenging the lack of public participation in the excise duty rate adjustment.

Based on the present rate of excise duty by nominal terms, Mt Kenya Times calculates the secondary fuel price hike under the inflation adjustment at Ksh.1.09 per litre for petrol and 57 cents for diesel and kerosene respectively.

The adjustment of the excise duty rates for inflation is meant to cover the tax man from revenue losses resulting from inflation- the decrease in value of local currency/ the shilling over time.

A week ago, KRA suffered another setback after the high court declared its new minimum tax unconstitutional.

The taxman introduced the 1 per cent tax in January 2021, as part of its tax expansion programme.

KRA has been on a plan to raise revenue to fund the government’s Sh3.03 trillion budget and cut the widening budget deficit that has reached Sh953 billion this year.

The tax expansion programmes have been paying off as KRA surpassed its revenue collection target in the financial year 2020/21.

The taxman collected Sh1.669 trillion compared to Sh1.607 trillion collected in financial year 2019/20, despite the economic effects of the Covid-19 pandemic.

However, on the other hand, the ruling comes as a relief to businesses who were wary of paying the tax on total sales even in a loss making position while still coping with tough economic times occasioned by the Covid-19 pandemic.

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