iN THE DOCK

Regulator denies 'error' in fuel price calculation

Pegs price increase on landed costs

In Summary

•EPRA under covered VAT on super petrol, diesel and kerosene for the June 15 to July 14 cycle, which had to be corrected in the latest pricing review.

•This is said to have led to an increase in prices where a litre of petrol rose by Sh11.38 while a litre of diesel went up by Sh17.30.

EPRA Director General, Pavel Oimeke
EPRA Director General, Pavel Oimeke
Image: COURTESY

The Energy and Petroleum Regulatory Authority (EPRA) has refuted claims that a previous error in computing fuel prices led to an increase in pump prices in its last review.

Thera are claims that EPRA under covered VAT tax on super petrol, diesel and kerosene for the June 15 to July 14 cycle, which had to be corrected in the latest pricing review (July-August).

This is said to have led to an increase on prices where petrol prices rose by Sh11.38 to sell at the current rate of Sh100.48 per litre in Nairobi while a litre of diesel went up by Sh17.30 to retail at Sh91.87.

Petroleum PS Andrew Kamau is quoted by the Sunday Nation, saying the miscalculation was an oversight by the energy regulator, which had failed to include excise duty in computing the VAT on fuel, which had to be corrected in the latest pricing review.

“This has now been corrected and since it was not the oil marketers’ mistake, there was no way to go back and ask them for what they didn’t collect,” the PS is quoted having said.

EPRA, however, said the increase on pump prices in the July-August cycle was “to a great extent” due to landed costs, which had increased by 12.64 per cent for super petrol and 32.16 per cent for diesel (as compared to the previous month).

Additionally, the increase by Sh5.00 per litre of the Petroleum Development Levy for both super petrol and diesel pursuant to the Petroleum Development Levy Order, 2020 (Legal Notice No. 124 dated July 10, 2020) further increased pump prices.

This, even as it admits to under-recovered VAT in the pump price for the period July 15 to August 14 2020.

“EPRA wishes to inform the public and stakeholders that petroleum pump prices are computed in line with the Energy (Petroleum Pricing) Regulations and that only prudent and verified costs are passed onto consumers,” the authority, led by director-general Pavel Oimeke said.

The other components in the price build-up are storage, distribution costs and supplier margins, the regulator said in a statement.

According to EPRA, taxes, levies and duties contribute 53.3 per cent of the current price for super petrol, 46.8 per cent of the price for diesel and 53.5 per cent of the price for kerosene.

Data shared by EPRA shows landed cost for petrol was Sh31.42 per litre, Diesel (Sh33.59 per litre) and Kerosene (Sh15.21 per litre).

The three products attracted Sh3.11, Sh2.93 and Sh2.85 per litre, respectively, as storage and distribution costs.

Supplier margin was marked at Sh12.39 (petrol) and Sh12.36 for diesel and kerosene.

Taxes and levies totalled Sh53.56 per litre of petrol, Sh42.99 for diesel and Sh35.03 for diesel.

The Finance Act, 2018 introduced VAT at eight per cent (8%) on super petrol, diesel and kerosene.

Whereas Section 13 (3) (c) of the VAT Act 2013 requires all taxes, levies and duties to be included as part of the taxable value in the computation of VAT, the Finance Act 2018 exempted these in the determination of the taxable value for super petrol, diesel and kerosene.

The exemption was later withdrawn by the Tax Laws (Amendment) Act, 2020.

EPRA says on June 14, it received confirmation from two Oil Marketing Companies (OMCs) that based on the tax entries received from the Kenya Revenue Authority, only excise duty had been considered as part of the taxable value for the products.

The other taxes, duties and levies had been excluded from the taxable value.

“Accordingly, and to avoid passing to consumers a cost whose prudence was in doubt, EPRA only included excise duty and excluded all other taxes, duties and levies in the computation of the taxable value for the pump prices,” it notes.

This meant that the price of super petrol and diesel was understated by Sh1.60 per litre while that of kerosene was understated by Sh1.55 per litre, pending clarification of the computation of the taxable value by KRA.

“It is worth noting that delayed compensation is a common occurrence in any regulated price regime until the cost component in question is fully verified,” it said.

On June 16, 2020, EPRA wrote to KRA seeking clarity on the computation of the taxable value for fuel products in light of Section 13(3)(c) of the VAT Act 2013.

On June 18, KRA wrote to EPRA confirming that the computation of the taxable value for super petrol, diesel and kerosene at the sales point ought to have included all taxes, duties and levies.

“EPRA had therefore to factor the outstanding amount on account of under-recovered VAT in the pump price for the period July 15 to August 14 2020,” EPRA says.