Kenya Revenue Authority (KRA) plans to impose a 16 percent VAT on cooking gas in the
coming financial year as the government continues searching for ways to fill the budget deficit.
The move will increase the cost of cooking gas by more than Ksh 300.
The effective date of subjecting liquefied petroleum gas (LPG) to VAT is 1st July 2021. Kenyans
have been enjoying lower prices for cooking gas since 2016 when the National Treasury
scrapped taxation on LPG to reduce costs and encourage higher usage among those who were
relying on charcoal and kerosene.
The proposal to impose VAT on LPG is a part of the Finance Bill 2020 that reinstated taxation
on the product. The government had plans to start implementing the decision in 2020 but decided
to prolong it to this year after a discussion with the National Assembly concluded it was not the
right moment.
Many users at the time were experience loss of jobs and income when the effects of the
pandemic were causing pressure on the economy. The price of a 13-kilogram gas cylinder fell
below Ksh 2,000 after scrapping of VAT in 2016.
The price of cooking gas has not changed much since the scrapping of the VAT. The lengthy
stableness is despite an increase in the price of crude oil during the period. Currently, a liter of
petrol is selling at the highest price of Ksh 124.81. Many urban areas prefer cooking gas over
other cooking fuels because it is cleaner and convenient to use. VAT charges might reverse the
gains of LPG uptake when many households are struggling with low incomes triggered by the
economic effects of Covid-19.
A reintroduction of VAT causes concern about runaway costs because the prices of LPG, unlike
petroleum products, are not under the control of the Energy and Petroleum Regulatory Authority
like other petroleum products. It is left to the forces of supply and demand. There are fears that
dealers can use the factor to their advantage by agreeing to fix high prices. Such behavior was
the reason for giving EPRA the authority to control costs for petrol, diesel, and kerosene.
The average retail price of 13 Kilogram gas at the moment is about Ksh 2,250, but it will
increase to Ksh 2,610 when the seller passes the VAT to the buyer.
The increase comes when the government has been under fire for increasing the prices of
petroleum products every 14th day of the month for three consecutive months. EPRA was in the
process of improving the prices further in April after the Mining and Petroleum Cabinet
Secretary John Munyes warned Kenyans to be ready for further price hikes in the coming
months. Munyes, when addressing a senate Energy Committee said, “Taxes and levies are the
biggest contributors to prices. We expect prices in Kenya to increase as global oil price
escalates”
Expensive gas will cause further burden to Kenyans who feel the effect of paying more for their
energy needs and challenge for government because of the expected backlash. It is alleged that
public anger compelled a decision to backtrack on a plan to raise fuel prices in April and instead
decided to maintain them at the same level as of March.