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Senators caution against introducing VAT on fuel

Parliament wants the National Treasury to postpone implementation of 16 per cent Value Added Tax (VAT) on petroleum products set for September this year.

Senate Energy committee warned yesterday that if implemented in its current form, the price of fuel could go up by at least Sh12. The committee chaired by Nyeri Senator Ephraim Maina told Treasury officials that the timing was wrong to impose the tax, especially at a time when the economy is underperforming.

“The best option is for you to postpone the imposition of VAT on petroleum products,” Maina told a team from the Treasury and the Energy Regulatory Commission (ERC). If the bid to suspend VAT is successful, it will be the second time, having been delayed in 2016. The tax was introduced in the VAT Act enacted in 2013.

The law was given a three-year grace period, but was pushed for a further three years in 2016 after Parliament amended the Act. ERC said that if introduced, VAT on petroleum will be calculated based on the landed cost of the commodity, plus demurrage charges, duties and levies.

“If you operationalise the raw price of essential items including food, transport among others will shoot up,” said Mary Senata (nominated senator). Senators sought to know whether the increase of the Road Maintenance Levy from Sh6 to Sh18 in 2016 was not enough to plug budget deficits that Treasury is seeking to by introducing VAT.

Treasury Chief Administrative Secretary Nelson Gaichuhie told the committee the reason the VAT should be imposed is to enable Treasury raise revenue required to move the country forward. Gaichuhie told members that the Sh34 billion that the Treasury calculates would be added to the national purse would be a boost towards the revenue target of Sh1.7 trillion in the coming financial year.

The amount has already been factored in the 2018 Budget Policy Statement currently under consideration by Members of Parliament. Gaichuhie, however, denied claims by the Senators that Treasury was being pressurised by the International Monetary Fund to reintroduce the Structural Adjustment Programmes (SAPS) by removing all tax exemptions as part of a wider plan to increase revenues. Narok Senator Ledama Ole Kina urged the National Treasury to look for other areas and ways of increasing revenue collection like in taxes that will not affect the already overtaxed common Kenyan.

“It is clear that what you are trying to do will push the prices of essential commodities high, we as Parliament will have no option but to delay the implementation of any increase of taxes ,” said Senata.

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