Kenyans suffering recent fuel increases will have to bide their time before taxes are lowered, if they are lowered at all by a government desperate for revenue.
The fuel levies and taxes are blamed for the price surge in the latest review by the Energy and Petroleum Regulatory Authority.
National Assembly Speaker Justin Muturi on Tuesday directed the Finance Committee to make a report to the house on the EPRA review within 14 days.
The committee chaired by Homa Bay Woman MP Gladys Wanga is expected to attach a draft bill to its report but work is just beginning.
The bill will propose legislative interventions to reduce taxes and levies.
“We are laying the groundwork and will start [engagements on the public petition] next week,” she told the Star when asked about progress.
Muturi directed the committee to find out if there are other reasons for the high prices beyond taxation.
“The enquiry should be with a view to proposing administrative and legislative measures for addressing those causes,” he said.
Two Kenyans — Antony Manyara and John Wangai — have petitioned the House seeking urgent repeal of Section 13 of the Finance Act, 2018.
They want MPs to abolish the eight per cent Value Added Tax on which the price increase is pegged.
Even after the committee deliberates, observers said motorists and other fuel users' woes will not end immediately.
Energy consultant Patrick Obath said, "Bunge approved the pricing formula, which is what drives fuel prices. The original, bare formula had fuel events only.
"The same Bunge, when presented the changes by the Executive, also passed the addition of all the levies and taxes suggested. The only thing Bunge can do is to reduce or remove the levies and taxes."
Interviews with MPs and experts indicate three factors are likely to determine end results.
They cite the time taken in the National Assembly review process, in the face of the blame games by members, and the need for the goodwill of the Executive.
Tied to goodwill is the headache of raising two-thirds to override a veto by President Uhuru Kenyatta.
Speaker Muturi said the House might not have the numbers.
“We should ask ourselves that whereas the Constitution has given this House a leeway to override a veto, will we be unable to raise 233 votes out of 349?” Muturi said.
Former Majority leader Aden Duale (Garissa Township MP) said the taxes are linked to tough conditions set by the IMF in the Extended Credit Facility to Nairobi.
"[Former US President Barack] Obama used his veto power four times. President Kenyatta has used it over 35 times. This House must rise to the occasion. We must not allow the President to use his powers to make Kenyans suffer," Duale said.
Thus, some MPs say the review by Finance committee may amount to nothing unless the Executive acquiesces.
They emphasise the tough balance the President must strike given the debt pressure on the Exchequer.
A report by the Controller of Budget revealed that 64.1 per cent of tax revenue collected is spent on public debt.
“The process in Parliament could as well amount to drama. If you say in two weeks you need a report, how much money would have been collected by the end of the two weeks?” Homa Bay Town MP Peter Kaluma asked.
He said Kenyans should not focus on VAT only, as other levies are responsible for the huge fuel price differences between Keya and landlocked countries.
“Let all of them be reviewed. Let us do the hard work of breaking down the cost of fuel per litre. You cannot focus on VAT alone,” Kaluma added.
MPs have an option of amending the Finance Act, 2018, to repeal the tax laws or process regulations drawn up by the Kenya Revenue Authority.
Observers say that considering the Exchequer challenges and the country’s cash-flow problems, it would be foolhardy for KRA to propose a tax reduction.
“…it would be contradictory for KRA to propose a tax reduction unless it is sanctioned by the President,” a parliamentary official said, requesting anonymity.
Despite the psyche of the House wanting to reverse the levies, trouble would follow if the President declines, he said.
“If the President doesn’t agree with the propositions, a two-thirds [vote to override] would be hard to attain. They may only force the President to find a compromise as when the government proposed 16 per cent VAT,” the official said.
“If the committee proposal is off the mark, it would mean a veto. At the end of the day, the Executive is alive to changing the law, MPs efforts may end up in vain.”
But Matungulu MP Stephen Muli, who also filed a petition to amend the Finance Act, 2018, dismissed that narrative, saying MPs would go flat out to lift the fuel price burden.
“We will raise the numbers. We had over 240 members in the chamber on Tuesday. That was a sign we can rally ourselves to change the law," the MP said.
National Assembly Majority leader Amos Kimunya said it might be possible to reintroduce a government subsidy to cushion Kenyans on a short-term basis.
“The only reason fuel did not go up was that the Petroleum Development Levy Fund was used to cushion the taxpayers,” he said.
In an earlier appearance before the Energy committee, EPRA bosses said petroleum pricing is tied to provisions of the Energy (Petroleum Pricing) Regulations, 2010.
Pump prices are calculated to factor in landed cost, storage and distribution, gross margins and applicable taxes.
Fuel is subject to excise duty tax, road maintenance levy, petroleum development levy, petroleum regulatory levy, railway development levy, anti-adulteration levy, merchant shipping levy, import declaration fee levy and VAT.
During processing of the Finance Bill, 2021, audit firm KPMG advised MPs to exclude excise duty, fees, and other charges contributing to tax on fuel products.
In a memorandum to the Finance committee, KPMG said, "High fuel prices threaten to jeopardise economic recovery, which is facing the realities of reduced disposable income of most Kenyans.
“The high fuel price is, therefore, likely to further erode the much-needed income apportionment and affordability of other essential commodities,” KPMG said.
But in its report, the committee shot down the proposal, citing a significant reduction in revenue collected from the sector.
“The committee, therefore, rejected the proposal. In addition, fuel products are vatable at eight per cent, which is a lower rate compared to 16 per cent of most goods,” the Finance committee report read.
Kitui Central MP Makali Mulu said the committee should look at specific levies and see if they make sense or not, considering the prevailing economic situation.
“The committee needs to work very fast. The proposal for a draft bill will enable us to work on this matter and have it behind us. I am looking forward to the report being concluded to give justice to Kenyans,” the MP said.
Rarieda MP Otiende Amollo said the committee should not take 14 days but report as soon as possible.
“If they are able to prosecute it in three days, so much the better. The committee should not delay on grounds the Senate has also chosen to prosecute it at the same time.”
He argued the price increase is related to policy decisions, more than the law being cited as causing the increase.
Kikuyu MP Kimani Ichung’wah said, “It is not a question of the cost per barrel. The question we should answer is why EPRA is setting margins petroleum dealers should enjoy.”
He said the committee should ask the Treasury CS to suspend the operationalisation of VAT on fuel and excise duty.
(Edited by V. Graham)
