MPs recommend halving of fuel taxes


Filling station

By: Kimathi Nduru@MountKenyaTimes

Worth Noting:

  • Upon adoption of the report, the National Treasury will be required to revert the Sh18.1 billion that was misapplied back to the Petroleum Development Levy Fund for stabilisation of fuel prices.
  • The report’s revealed that Sh18.1 billion meant for price stabilization had been channelled to fund infrastructural projects.
  • “The total revenue collected from the Petroleum Development Levy amounted to Sh25.88 billion in the FY 2020/2021. The National Treasury disbursed Sh1.6 billion to the State Department for Petroleum for fuel stabilization, disbursed Sh2.2 billion to the Ministry of Energy and disbursed Sh18.1 billion to the State Department for Infrastructure,” stated the report.

National Assembly Committee on Finance has recommended reduction on taxes and levies through tax law amendments to cushion Kenyans from the spike in fuel prices in the recent months.

The Gladys Wanga chaired committee in a report tabled in the House Tuesday directed the Petroleum ministry and the Energy and Petroleum Regulatory Authority (Epra) to ensure every parameter in the formula is accounted for.

If adopted by the House, the report will see Value Added Tax (VAT) reduced from 8 per cent to 4 per cent as well as Petroleum Development Levy (PDL) cut by a half.

“Revoke the Petroleum Development Levy Order, 2020 (Legal Notice No.124 and 174 of 2020); and amend the Petroleum Development Fund Act, 1991 by providing the amount that shall be charged to the PDL per liter of Super Petrol and Diesel,” read the report in part.

The report also recommends reduction of VAT rate on Liquefied Petroleum Gas (LPG) from 16 per cent to 8 per cent as well as the gross margins of oil marketing companies by Sh3.

The report is seeking to reduce the Petroleum Development Levy charged on Super Petrol and Diesel from Sh5.40 to Sh2.90.

Fuel consumers have been contributing to the levy kitty provided for fuel price stabilization in the country, with the highest contribution per litre of fuel being Sh5.40 under the Petroleum Development Levy Fund Order (2020) leading to an increase in the cost of petroleum products.

Upon adoption of the report, the National Treasury will be required to revert the Sh18.1 billion that was misapplied back to the Petroleum Development Levy Fund for stabilisation of fuel prices.

The report’s revealed that Sh18.1 billion meant for price stabilization had been channelled to fund infrastructural projects.

“The total revenue collected from the Petroleum Development Levy amounted to Sh25.88 billion in the FY 2020/2021. The National Treasury disbursed Sh1.6 billion to the State Department for Petroleum for fuel stabilization, disbursed Sh2.2 billion to the Ministry of Energy and disbursed Sh18.1 billion to the State Department for Infrastructure,” stated the report.

While appearing before the committee, Treasury Principal Secretary Julius Muia defended the ministry, saying they acted within the law to channel the funds to other development programs.

He said it was unfortunately that once the money was depleted, the exchequer could not reallocate other funds to the levy kitty due to lack of structures.

The reduction of the fuel tax rate by a half recommendation is likely to be contested by the National Treasury, which had warned such action would trigger a funding crisis.

The exchequer had said that fuel taxes and levies account for about 14 per cent of the annual national government revenues, and a reduction will mean that either the national government reduces its expenditures or incur more debt to bridge the financing gap.

Lawmakers who interrogated treasury officials urged the ministry to use legal financial mechanisms to bridge the gap.

“The National Treasury should prepare Supplementary Estimates for consideration which shall reflect the reduction in revenue occasioned by the amendment,” the report recommended.

The finance committee has sought to offer remedy to the misapplication of the fund by recommending amendments on the Petroleum Development Levy Act, 1991 to provide for formation of a board which will guide the utilization of the stabilization fund.

“The Fund shall be managed by a Board similar to the Roads Maintenance Levy. The Fund shall be used for stabilization of fuel prices and for matters relating to the development of common facilities for distribution or testing oil products,” the report recommended.

The Ministry of Petroleum said it was unable to cushion Kenyans from the high fuel prices in September after it established that the kitty was running low on funds.

Since 1991, the PDL kitty has lacked a legal framework to guide the management of the fund.

The report also seeks to have the Kenya Ports Authority fast-track the completion of the Kipevu Oil Terminal II in order to reduce demurrage costs.

The report further seeks to have the number of days that a ship can stay at the Kipevu Oil Terminal (KOT) be specified as is the case with Shimanzi Oil Terminal in order to reduce demurrage charges.

According to a document that was tabled before the committee, the taxpayer spent Sh1.3 billion in demurrage charges between January and August. The amount was paid to 60 vessels that docked at the Port of Mombasa.

Demurrage is the fee paid when a ship arrives at the terminal to discharge oil and has to wait beyond the stipulated time. It is charged on an hourly rate based on the agreed market price, and it emerged yesterday that a vessel attracts Sh4.5 million per day it spends at the port.

Fuel prices in Kenya mid last month shot up significantly, sparking outrage across the country.

The price of petrol jumped 6% to 134.72 shillings per litre in Nairobi, while diesel and kerosene sells at Sh115.60, Sh110.82 respectively.

The new rates have been in place from Sept. 15 up to (today) midnight, October 14.

EPRA is expected to announce new fuel prices that will be in effect from midnight tonight, later today.

 

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