The 16 per cent VAT on petroleum products will take effect on Saturday, Treasury CS Henry Rotich has said.
This will see pump prices for petrol and diesel go up by 10 per cent while Kerosene will increase by 12 per cent, Rotich said.
In effect, a litre of petrol will retail at Sh125.21, Sh112.90 for diesel and Sh95.19 for a litre of kerosene.
Rotich’s directive goes against Parliament’s decision on Wednesday to suspend the implementation of the levy until September 1, 2020.
The amendment to the Finance Bill, 2018, moved in the National Assembly by Suna East MP Junet Mohamed was meant to cushion Kenyans from high cost of living.
In justifying the implementation of the levy, Rotich, however, said the imposition of VAT on petroleum products is primarily to improve tax collection efficiency.
He said VAT is a broad-based tax and should, therefore, have limited exemptions in order to reduce or eliminate revenue leakages.
Rotich noted that under the VAT Act, most of the VAT associated with petroleum products is not claimable due to the exempt status of the products.
“For example, VAT incurred by distributors of petroleum products to bring the exempt supplies to sale cannot be recovered,” he said.
“When these products become vatable, the input VAT that was previously non-recoverable will now be recoverable,” Rotich said.
The CS said the levy will supplement tax revenue sources given the enormous consumption of the petroleum products in the economy.
The implementation of the VAT on petroleum products has been suspended on three occasions since 2013 when it was first supposed to come into effect.
The suspension lasted for three years after which petroleum products were to be subjected to VAT from September 1, 2016.
In June 2016, before the expiry of the transition period, the grace period was extended for a further two years.
This was to avoid the escalation of pump prices of the petroleum products in the market due to the increase in the rate of Road Maintenance Levy from Sh12 per litre to Sh18.
The transition period expires on Friday after which Rotich said the products will attract the 16 per cent VAT.