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September 19, 2018

Why fuel prices shot up, Governemnt collects Sh38 levies, taxes per litre of petrol

Cabinet Secretary Henry Rotich leaves National treasury building for parliament to present the 2016-17 budget estimates on June 8, 2016. Photo/Jack Owuor
Cabinet Secretary Henry Rotich leaves National treasury building for parliament to present the 2016-17 budget estimates on June 8, 2016. Photo/Jack Owuor

The government will collect Sh38.41 for every litre of petrol sold up from Sh32 presently over increased road maintenance levy which accounts for nearly half the cost of fuel.

Transport Cabinet secretary James Macharia is due to gazette an increase of Sh6 in the levy any time from today, hitting motorists hard.

From every litre of petrol, Sh18 will go to the fuel levy, which is managed by the Kenya Roads Board, Sh19.89 will be excise duty, the petroleum development levy will get Sh0.40, and Sh0.12 will go to the petroleum regulatory levy.

Treasury Cabinet secretary Henry Rotich, in his budget policy statement on June 9, caved into pressure from the KRB to increase the levy by Sh6 per litre of super petrol and diesel.

Read: Motorists, industries hit hardest by fuel levy

The Treasury, the Energy Regulatory Commission, the Kenya Revenue Authority and the KRB have been discussing the effective date of the fuel levy over the past few weeks.

The energy sector regulator ERC yesterday said it is awaiting direction from the KRA and KRC on the gazettement of the levy before it is factored into super petrol and diesel prices.

“It (the implementation date) is something we are waiting from KRA and once the KRA confirms we shall be in a position to tell,” ERC acting director for petroleum Edward Kinyua said on the phone.

“We can’t say that it will not be factored in this month’s pricing because we have today and tomorrow (to fix the fuel prices). They (KRA) are following up on the gazette notice.”

The KRB in its proposal for doubling fuel levy in the financial year 2014-15 from Sh9 set in 2006, which was first rejected by the Treasury, argued the cost of construction materials, labour and transport have all risen amid expanding road network.

“The construction of roads may be a public good and therefore taxes are used, but they should be maintained by people who are using it,” Institute of Economic Affairs Kwame Owino said yesterday.

“But there is an efficient question of what share of that money goes into administration and what goes into the roads. In most cases generally about 20 or 30 per cent of the levies goes into administration costs and that’s what really concerns us as the Institute of Economic Affairs.”

If the increased levy is considered in today’s review, about 44.57 per cent of the retail price for a litre of petrol will be spent on levies and taxes, going by last month’s Sh86.17 price for Nairobi.

The government share will rise further by 16 per cent from September next year when the Value Added Tax is applied on petroleum products.

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