KRA, The Major Beneficiary as Government Reconsiders the Oil Subsidy

According to Business Daily, the KRA is receiving Sh62.89 per liter of gasoline, a 39 percent increase in tax receipts over the previous two years, making the Kenya Revenue Authority (KRA) a major benefactor of the rise in pump prices.

The Kenya Revenue Authority (KRA) has benefited immensely from the increase in fuel prices. In June 2020, the KRA collected Sh45.1 in taxes and levies from fuel, compared to Sh51.6 the previous year. The taxman now collects Sh62.89 for every liter of gasoline, demonstrating the influence of levies on increasing fuel costs.

Kenya is suffering from a spike in crude oil costs, which led the country to subsidize retail prices in April last year. The subsidy arrangement is proving unsustainable, and the Treasury has begun reducing government assistance. Diesel prices would have risen by another Sh48.19 per liter if the subsidy was unavailable.

Monica Juma, the Energy Secretary, has stated that the government would end the fuel subsidy program, citing high gasoline prices and a rise in the cost of essential goods and services in the coming months. In this fiscal year, Kenya has paid Sh67 billion to keep pump prices stable. According to Dr. Juma, the sum would rise to reach Sh84 billion by the end of this month.

A liter of super and diesel costs Sh159.12 and Sh140 in Nairobi, respectively, while kerosene costs Sh127.94.The Kenya Petroleum Refineries Agency (KPRA) Director-General, Dr. John Juma, said that the government spends Sh67 billion yearly subsidizing petroleum goods. Despite this investment, petroleum prices have remained high on the world market, pushing KPRA to look for other sources of revenue.

Due to a significant increase in compensation margins to oil marketers, Kenya’s fuel subsidy fund has been emptied multiple times. In the upcoming fiscal year, the government plans to support the subsidies through additional budgets. By the end of the year, diesel and super-fares are likely to reach new highs.

“A gradual adjustment in domestic fuel prices will be necessary,” Treasury Secretary Ukur Yatani says. “About 40 percent of the retail price of petrol goes to taxes and levies.” The National Assembly Finance committee had directed a cut on the eight percent value-added tax (VAT) on petroleum products to four percent. For every liter of petrol retailing at Sh159.1, the government collects Sh62.89 and takes Sh51.60 for every liter of diesel selling at Sh140.

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