- In Kenya, fuel is set to cost more once the taxman effects 16 percent VAT from the current 8 percent, which will make already high pump prices simply prohibitive.
- Starting January 2024, Finance Bill also seeks to increase the advance tax payable on passenger and commercial trucks to $36.52 from $21.91 per year.
- The new tax will simply increase the cost of transportation in Kenya, piling pressure on consumers already overburdened by high food prices amid sluggish economy.
Kenya’s transportation sector is at risk as the government considers fresh fuel VAT increase, which threatens to cripple businesses. Through the Finance Bill, the government is also proposing to increase the advance tax payable on passenger and commercial trucks to $36.52 from $21.91 per year. As a result, investors in the industry might be forced to scale down their operations even as others heap the costs on consumers.
The looming hit by the taxman is bound to cause ripples, driving up inflation across East Africa given the huge significance of Kenya’s economy in steering regional trade. Assurances by the government that the new tax measures will benefit the country in the long term have been received with skepticism.
Fuel VAT increase could trigger inflation
A May 12 forum to discuss new tax proposals turned sour as parties cited new charges on trucks and trailers. If implemented, truck owners will be required to pay advance tax of $36.47 per year up from $21.88 previously. The new rate will come to force from January 2024 with the exclusion of tractors/trailers used for agricultural purposes.
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The move is causing jitters across East Africa Community bloc because it will hit Kenya’s import and export sectors. By increasing the cost of commercial transportation, the end consumers will be forced to pay more for goods. At the moment, the EAC bloc is a market of roughly 300 million consumers. Kenya exports huge volumes of products to Uganda, Tanzania, the Democratic Republic of Congo as well as Rwanda by road.
Kenya Economic Survey 2023 shows that transport, travel, and telecommunications recorded increased inflows last year, leading to $1 billion surplus. Additionally, the industry provides support to a wide network of ventures in the value chain such as hotels and accommodation.
Fuel prices in Kenya are already high
If the Bill passes into law, fuel prices will be subject to 16 percent VAT, pushing up pump prices. Fuel prices in Kenya are already at an all time high, following the government’s plan to drop subsidies. Currently, super petrol, and diesel are trading at $1.33 and $1.24 per litre respectively in Nairobi.
Kenya’s transport sector is already faulting the Bill. According to Netwon Wang’oo, chairman of the Kenyan Transport Association said, “As much as advance tax is treated as a tax credit, the proposed increase in advance tax would have adverse impact on the cash flows of transport companies, which are already struggling due to the high fuel and maintenance cost.”
He added that Kenya’s tax inflation is already working against the country’s competitiveness within the EAC. Any further tax on the industry has the risk of eroding government revenue from the sector, he warned. Mr Wang’oo noted that the government should explore better ways to tax commercial vehicles.
The high tax takes a toll
President William Ruto has outlined new tax measures to finance the 2023/24 budget. The spending plan seeks funding to power housing agenda, revive agriculture and industry even as he services huge foreign debt.
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According to Lydia Abala, KPMG East Africa Regulatory Lead, Tax and Regulatory Services, “taxpayers should brace themselves for a more aggressive revenue authority because they (the KRA) will have to do all possible even where its demand is impossible to recover the tax.”
Preparation for more protests
Kenya’s tax inflation might cause a new wave of protests on cost of living. In May, opposition leader Raila Odinga suspended protests to pave the way for talks with the government.
Ken Gichinga of Mentria Economic said, “Unfortunately, it appears to be the IMF calling the shots. It doesn’t seem to be in keeping with the “Bottom Up-Hustler” narrative. If anything, those people will be worse off.”
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