INCREASE

Gas prices set to rise on value added tax

KRA to effect levy starting July 1.

In Summary

•This is in line with Finance Bill 2020 that removed liquefied petroleum gas (LPG) from tax-exempt goods under the VAT charge.

•With VAT, the prices are expected to increase by between Sh160 and Sh1,300 depending on the cylinder size.

LPG gas cylinders.
LPG gas cylinders.
Image: FILE

Kenya Revenue Authority(KRA) is expected to impose a 16 per cent Value Added Tax (VAT) on gas starting July 1.

This is in line with Finance Bill 2020 that removed liquefied petroleum gas (LPG) from tax-exempt goods under the VAT charge.

Implementation was however delayed by a year to the coming financial year, which starts July 1, on a call by Mps who last year argued households were facing a high cost of living at the height of the Covid-19 pandemic.

When a product or business is tax-exempt, the government does not tax the sale of the good but producers cannot claim a credit they pay on inputs.

When goods are zero-rated, the government does not tax their sale but grants credits for the value-added tax paid on inputs. 

The move now sets the ground for an increase in the cost of cooking gas in the country, even as the government advocates for the use of the clean product as opposed to kerosene and firewood, used mainly by poor households for cooking and lighting.

Gas prices increased last month with refilling a 13-kilogramme cylinder costing an average Sh2,074.23, Kenya National Bureau of Statistics data show, as the country's inflation rose to an 11-month high on the back of increased cost of transportation, fuel and basic foodstuffs.

Inflation, a measure of changes in the cost of living year-on-year, increased to 5.90 per cent from 5.78 per cent in February, the highest growth since 6.01 per cent recorded in April 2020.

The increase in the cost of gas was about 2.12 per cent higher than February when it retailed at an average Sh2,031 or the 13-kg cylinder.

With VAT, the prices are expected to increase by between Sh160 and Sh1,300 depending on the cylinder size.

Households have been enjoying VAT free gas since 2016 when it was scrapped to encourage uptake of the product and encourage dirty fuels.

An increase in prices is however likely to change the patterns on adoption of gas by households.

This, as Kenya lags behind among major economies in Africa on the uptake of the clean source of energy.

Government data shows the actual consumption of LPG per annum stands at approximately 170 kilotonnes (KT) as compared to a demand of 300 KT per annum.

Kenya's LPG consumption stands at two kilos per capita which is below Africa's average of three kilos per capita. Ghana's consumption stands at five kilos, South Africa with six , Senegal at 10, and Ivory Coast at nine kilos.

The tax on gas comes as the government further contemplates increasing VAT on petroleum products from the current eight per cent to 16 per cent, amid pressure from the International Monetary Fund (IMF) to double the tax in an effort to cut budget deficit and tame public borrowing.

This will add to the rise in global crude prices and increase on the local pump prices which were retained this month to defuse public outrage over the month-on-month increases witnessed since December.

The tax reviews now puts households at a tough rally ahead as the pandemic continues to claim businesses, jobs and other forms of livelihoods, a mid a rising cost of living.