Kenyans will start feeling the effects of the recently enacted Finance Bill 2023 tomorrow when the Energy and Petroleum Regulatory Authority (EPRA) announces new pump prices today.

EPRA is expected to push fuel prices upwards in line with the new law that has introduced a 16 per cent Value Added Tax (VAT) on all petroleum products with the exception of gas.

The new tax becomes effective tomorrow when the government’s financial year officially begins.
Yesterday, EPRA announced in a public notice that it will set the new prices today following the increase of VAT on petroleum products from eight to 16 per cent.

“Following the enactment into law of the Finance Act 2023, we will on Friday, June 30, 2023, announce the reviewed maximum petroleum pump prices,” EPRA said in a statement.

Ordinarily, EPRA announces changes in fuel prices on the 14th day of every month, based on prevailing import prices. However, it has to announce the price changes today — and on the 14th — first to effect the VAT and after a fortnight to review the monthly price adjustments.

It is anticipated that petrol prices will increase by up to Sh12 per litre from tomorrow after the Members of the National Assembly voted to double the Value Added Tax on fuel.

A litre of petrol in Nairobi is likely to cost Sh193.77, up from the current Sh182.04 while diesel is expected to retail at Sh177.94 from the current Sh167.28.

Kerosene consumers should expect to buy a litre at Sh171.71, up from the current Sh161.48.

The move is expected to spark a fresh round of price increases across the board with both food and non-food commodities, expected to cost more due to higher costs of production and transportation.

For instance, commuters will carry a disproportionately high burden because it will not only cost them more to travel to and from work, but they will also pay more for basic goods such as flour, bread, and sugar among others if manufacturers push the extra cost of fuel to consumers as has happened in the past.

Prof Anthony Thomas Osambo, a tax expert and a lecturer at the Jomo Kenyatta University of Agriculture and Technology (JKUAT) told People Daily that implementation of the new law would lead to a substantial increase in fuel prices.

The don said an increase in VAT on petroleum products will hit homes, farmers, business owners and manufacturers, all of who are already grappling with a high cost of living caused largely by prolonged drought and the Russia-Ukraine conflict which has disrupted the global commodity market.

“Increased fares will be inevitable, which will hurt commuters who are already grappling with a high cost of living,” warned Prof Osambo.

Although the government has lowered certain levies such as railways development and road maintenance fees — which also affect the prices of petroleum products — Kenyans should expect higher costs of goods and services as a result of increasing the VAT from eight per cent to 16 per cent.

“An increase in fuel prices will obviously lead to an increment of costs of various services such as transport, agricultural produce and production in factories. Implementation of the new law will have far-reaching effects on Kenyans as from today,” warned Prof Osambo.

He also cautioned that the government might not realise the targeted revenue from the new fuel prices because some private motorists could opt to use public transport to commute to work.

“EPRA should release the consumption rate of diesel and petrol over the last three months to enable us to determine the trend because, from a cursory look of things, many individuals with private cars have abandoned them and use public means. And with the new prices coming into effect, the trend is likely to worsen,” Prof Osambo projected.

Government officials, however, said that even though VAT went up, the government removed other taxes on fuel, such as the railway development levy and road maintenance fees.

It has also offered some relief for families by lowering VAT on cooking gas from 16 to eight cents. This is meant to encourage the use of cooking gas in lower-income households that traditionally rely on kerosene or wood for lighting and cooking

The Finance Act, of 2023, which President William Ruto signed into law last week, introduced changes to the tax structure, with a particular focus on the petroleum sector.

Tomorrow’s adjustment in pump prices is expected to have a ripple effect on various sectors of the economy. Businesses that rely heavily on fuel for transportation and manufacturing processes will need to reassess their operating costs and budgets.

Moreover, consumers will be anxious to gauge how these price changes will affect their personal expenses, especially given the interconnectedness of energy prices with daily necessities such as transportation and heating.

Usually, when making adjustments on fuel prices, EPRA takes into account multiple factors, including global oil prices, exchange rates and the VAT adjustment introduced through the Finance Act.
By considering these variables, EPRA aims to strike a balance between providing fair prices for consumers and ensuring the sustainability of the energy and petroleum industry.

EPRA’s decision on pump prices will also impact on the government’s revenue generation.
If transport trends hold, it will collect more revenue. If motorists change their behaviour, however, this could dampen collection.

Already, Azimio leader Raila Odinga has asked his supporters to walk to work to deny the government the opportunity to collect more revenue from fuel taxes.