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Review fuel levies to tame the rising costs – Business Daily

The increase in fuel taxes amid the continuation of the petroleum subsidy programme is an indication that the issue of high petroleum prices is not being handled in the most efficient manner.
Fuel taxes rose by Sh13.2 billion to Sh134.85 billion in the six months to June, according to data from the Energy and Petroleum Regulatory Authority (Epra).
Over the same period, the government has spent Sh71 billion to subsidise consumers of petrol, kerosene, and diesel. If the government believes the subsidy programme is a temporary intervention to cushion industries and motorists from abnormally high prices, it will be better to simply suspend or reduce some of the taxes on fuel until the cost of the commodity eases in the international markets.
This will eliminate the bureaucracy and challenges in administering the subsidy, which has featured delays in compensating oil marketers, causing supply disruption earlier in the year.
Petroleum products are among the most heavily taxed goods in the country, with some of the levies in percentage form.
This means that the higher the landed cost of the products, the more the government collects from the taxes which currently amount to 40 percent of the pump prices.
The nine taxes include Petroleum Development Levy, Road Maintenance Levy, Excise Duty, and Value Added Tax (VAT) ,which is set at eight percent.
So while the recent rally in global oil prices has hurt the country, it is clear that the plethora of taxes on finished petroleum products has made it worse.
It makes sense to make adjustments to the tax structure, including suspending some of the levies to cushion consumers and industries directly without maintaining the current subsidy scheme which aims to accomplish the same objective but less efficiently.
The full array of taxes can be reinstated to shore up government coffers once global oil prices have receded significantly as they inevitably will.
The recent spike in petroleum prices has been linked to economic recovery from the depths of the Covid-19 pandemic besides the Russia-Ukraine conflict.



Joseph Muongi

Financial.co.ke was founded by Mr. Joseph Muongi Kamau. He holds a Master of Science in Finance, Bachelors of Science in Actuarial Science and a Certificate of proficiencty in insurance. He's also the lead financial consultant.