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February 17, 2019

Profiteering, more than VAT, is driving infl ation

A car fuels at a petrol station. /Enos Teche
A car fuels at a petrol station. /Enos Teche

VAT on fuel is probably already a done deal. How else can the government raise Sh71 billion to help balance its books? Any other tax would be equally painful and unpopular.

President Uhuru Kenyatta on his return from China will decide how to proceed but his options are limited.

People think that VAT on fuel is more inflationary than it actually is. VAT is 16 per cent but companies can claim back most of that money by deducting their expenses ( input VAT).

Moreover, fuel is just one component of costs. For unga, the biggest cost is buying maize and then milling it. Transport is a much smaller share.

Even for matatus, fuel is only a fraction of their cost. But many matatus have doubled their prices. They are profiteering.

Companies are taking advantage of VAT to make excessive price rises. Even if Uhuru cancels VAT on fuel, they will not return their prices to where they were before.

So the biggest problem with VAT on fuel is the unscrupulous behaviour of many Kenyan suppliers.

Quote of the day: "It is impossible for me to be insulted or abused in any way. For I do naught that deserves censure, and I care not for what is reported falsely."

Emperor Titus Flavius

His army sacked Jerusalem on September 7, AD 70

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