Fuel prices look set for a hike if an advisory from the International Monetary Fund(IMF) for the country to hike Value Added Tax(VAT) on fuel from the current 8% to the standard rate of 16%, is brought to bear.
“This would be a positive shock for Kenya, easing potential external balance pressures from other sources. If needed to meet fiscal objectives, Kenya can capitalize on lower super, kerosene and diesel prices by aligning fuel VAT to the standard rate,” said the IMF advisory
Kenya is exposed to oversupply and volatility in the global oil market, a situation that has prompted the IMF to recommend this policy response.
Fuel Tax composition
These prices consider 8% Value Added Tax (VAT), the revised rates for excise duty, and the railway development levy.
Although the Kenya Shilling has been relatively stable, global crude oil prices are on the rise.
Between 15th March and 14th April 2021, the price of super petrol diesel and kerosene increased by KSh.7.63, KSh.5.75 and KSh.5.41 per litre, respectively.
Super Petrol, Diesel and Kerosene are now retailing at KSh.122.81, KSh.107.66 and KSh.97.85 per litre, respectively, in Nairobi.
With Kenya gradually shifting to the IMF for budgetary support, this situation has created room for the Washington-based multilateral finance giant to push its policy agenda aggressively.
Whether National Treasury will revise VAT on super, petrol and kerosene to 16% to help raise Government revenue in line with IMF demands against a potential public backlash remains to been seen.