More pain for Kenyans as IMF recommends increase in fuel prices

The cost of fuel is set to go up. [Photo: Standard]

The cost of fuel in Kenya is set to increase in the next few weeks following recommendations by the International Monetary Fund (IMF) to instate a 16% Value Added Tax (VAT) on petroleum products.

The IMF gave this recommendation in its recent Ksh255 billion loan to Kenya as measure to top budget deficit and tame public borrowing.

Kenya’s current VAT on all petroleum products is at 8 percent but the latest fuel price increase has skyrocketed the cost of living.

A litre of petrol in the country is retailing at Ksh121 while that diesel is at Ksh109. The last time that fuel prices shot to this was in 2011.

The only other time diesel prices rose to Ksh109 per litre was in 2018.

Now, IMF in its advisory to the government said that a 16 percent VAT on all petroleum products in a bid to shore up revenues even as IMF supports its programmes to respond to Covid-19 pandemic.

“If needed to meet fiscal objectives, capitalise on lower fuel prices by aligning fuel VAT to the standard rate,” the IMF told the government.

“Oversupply and volatility in the oil market would be a positive shock for Kenya, easing potential external balance pressures from other sources,” IMF said in its advisory according to Business Daily.

In 2018, efforts by the government to impose a 16 percent VAT on fuel was vehemently opposed forcing President Uhuru Kenyatta to cap it at 8 percent. The 16 percent VAT on fuel had been passed in 2013 but was shelved severally due to the adverse effects it would have on the economy.

In the last two fuel prices review by the Energy and Petroleum Regulatory Authority (Epra), the cost of fuel has gone up

In the latest review, taxes and levies gobbled up Ksh57.33 for every litre of super petrol, and Sh45.47 and Sh39.55 per litre of diesel and kerosene respectively.

Epra two weeks ago warned that fuel prices would continue increasing.

This leaves Kenyans battling harder economic times amid job cuts due to Covid-19 pandemic.