The 16 per cent Value-Added Tax (VAT) imposed on petroleum products in Kenya by the National Treasury took effect from Saturday.
The Finance minister Mr Henry Rotich said that the fuel tax will be implemented starting September 1 even after parliament on Wednesday voted to delay it by two more years.
Lawmakers amended the Finance Bill, 2018, in a move to cushion poor households from an increase in the cost of living as the VAT on petroleum products would cause a rise in commodity prices and transport.
But to be enforced, President Uhuru Kenyatta needs to sign it into law.
“The transition period for the exemption of the petroleum products granted in September 2016 will therefore expire on August 31, 2018, after which the products will attract VAT at the rate of 16 per cent,” Mr Rotich said.
This will see pump prices for petrol and diesel go up by 10 per cent with kerosene costs increasing by 12 per cent.
In Nairobi, a litre of petrol will retail at $1.25, diesel at $1.12 and kerosene at $0.95.
Treasury says the levies it will collect will prevent a deficit in the 2018/2019 budget.
“If the measure is not implemented, it will create a shortfall in the budget for the current fiscal year, which will therefore require alternative financing either through borrowing or additional tax measures including reviewing the current VAT rate upwards to 18 per cent, like the other EAC countries, in order to plug the shortfall,” Mr Rotich said.
Treasury, however, says it will work with relevant energy stakeholders to ensure that the interests of consumers, investors and stakeholders are protected in order to avoid escalation of petroleum pump prices.
“Under the current VAT Act, most of the VAT associated with petroleum products is not claimable due to the exempt status of the products. However, under this new regime, the ability of the VAT registered taxpayers to recover input VAT will therefore lower their cost base and as such, they should be able to retain reasonable margins on their petroleum pump prices,” Mr Rotich argued.