Expert Comment: State must commit to fuel tax review

Kenya Association of Manufacturers (KAM) appreciates the government’s interim decision in April 2026 to reduce VAT on petroleum products from 16 per cent to eight per cent as a measure to ease the cost burden on consumers and businesses.

Even so, fuel prices have a far-reaching impact across the economy, influencing transport, food production, agriculture, manufacturing, and logistics – ultimately affecting the cost of living and business competitiveness.

For manufacturers, fuel is a critical input from raw material sourcing to production and distribution. Kenyan manufacturers rely heavily on Automotive Gas Oil (AGO), Industrial Diesel Oil (IDO), and Heavy Fuel Oil (HFO). Access to affordable, reliable fuel is essential to sustaining industrial productivity.

Currently, taxes and levies – including Excise Duty, VAT, the Road Maintenance Levy, Petroleum Development Levy, Railway Development Levy, and the Anti-Adulteration Levy – account for approximately 46 per cent of retail fuel prices. This heavy burden pressures manufacturers and households amid rising operational costs and declining purchasing power.

Transport of raw materials and finished goods depends largely on diesel-powered vehicles, while some manufacturers use petroleum products directly as inputs. For example, resin and shoe polish makers rely on kerosene. Rising fuel prices, therefore, increase production and distribution costs across sectors, pushing up consumer goods prices. The fuel cost component in electricity tariffs is also projected to rise from Sh3.47 per kWh.

The impact is already visible: transport operators have raised fares nationwide, with further increases expected. Nationwide protests and work stoppages by public transport operators recently left many citizens stranded and unable to report to work. For manufacturers, these disruptions cause interrupted operations, delayed schedules, supply chain inefficiencies, and reduced productivity.

We therefore call on the government to urgently intervene. Fuel-related taxes and levies must be reviewed to ease economic pressure, protect local manufacturers’ competitiveness, lower commodity prices, stabilise supply chains, and support economic recovery. Equally important is the need to inject liquidity into the economy through targeted fiscal interventions.

Excerpts of the KAM CEO Statement on fuel prices