Fuel: Kenyans feel the pinch as their neighbours have an easy ride

A fuel pump operator fueling vehicle at the Shell Petrol station along Kenyatta avenue, Nairobi on July 1, 2023. [Edward Kiplimo, Standard]

Kigali is more than 1,600 kilometres by road from Mombasa.

By some estimate, it could take about 30 hours to drive from Mombasa to Kigali, factoring in the breaks a driver has to take as well as other barriers such as roadblocks and border crossings.

Yet, a litre of super petrol is more expensive at the Kenyan port city than it is in the capital of Rwanda.

A litre of super petrol is currently retailing at about Sh183.58 (1,517 Rwanda Francs) in Kigali. This is in comparison to Sh192.48 per litre in Mombasa, where fuel is cheapest in Kenya.

In Nairobi, the pump price for super petrol is Sh195.53 per litre and even higher in far flung towns such as Mandera at Sh209.

Pump prices in Kigali are cheaper despite the hours of travel that truckers have to put in to get fuel to Rwanda, transporting the commodity largely by road from Mombasa to Kigali - although there are marketers who might use the pipeline and pick the products at Eldoret and continue with the journey by road to Kigali through Uganda.

They also have the option of moving it by road through Tanzania's central corridor, also a long and tedious journey.

In reviewing prices downward in June, Rwanda noted that this had been due to lower oil prices globally. Prices in the world market have reduced significantly over the last year to about Sh10,700 ($77.66) per barrel of oil on Friday compared to an average of Sh16,454 ($117.53) on average in August last year.

"Fuel pump prices are revised downwards in line with a decrease in petroleum product prices registered on the international market," said the Rwanda Utilities Regulatory Authority (Rura) in a June 2 statement. Rura reviews prices every two months and will announce new prices on August 2.

A high tax regime has seen fuel sold in Kenya become the most expensive in the region, with not just Rwanda but Uganda and Tanzania also having cheaper petroleum products.

A litre of petrol is retailing at about Sh157.40 (TSh2,736) in Dar es Salaam and Sh159.99 (TSh2,781) in Arusha. This is even as fuel sold in Tanzania is imported under near similar conditions to what is sold in Kenya.

In Kampala, the pump price for super petrol is Sh190.49 a litre. Uganda imports nearly all the petroleum products through Kenya.

"A quick look at the current prices of petroleum shows that a huge chunk of the pump price goes to the government in form of taxes or levies," says Alex Kanyi, a tax law expert.

"Petroleum was already taxed heavily and increasing VAT will push up the tax component significantly, pushing up the price at the pump not by the cost of importing the oil but the taxes."

The Finance Act 2023 increased VAT on fuel to 16 per cent from the earlier eight per cent. This has added to the woes of Kenyans as other than increasing the cost of fuel, it is expected to have an impact on the cost of essential goods with industries relying heavily on diesel for transport and at times in their production processes.

And while Epra increased VAT on fuel in its pricing, the implementation of the Finance Act appears to have been selective as Railway Development Levy and the Import Declaration Fees that were reduced by the Act did not change in the prices that were effected on July 1.

Kenyans were already been grappling with the high cost of living with the new round of price hikes expected to push prices of essential goods and services beyond reach of many.

"We have already seen public service vehicle (PSV) operators increasing fares because of the increased VAT on fuel," notes Kanyi.

"Additionally, you have to look at this from a manufacturing sector perspective because of factories that would ordinarily use diesel to power their generators because they do not have consistent power from Kenya Power, if you increase the cost of that diesel, it means that they are going to pass on the cost of power to the final consumer."

At Sh77.94 per litre of the super petrol pump price, taxes and levies account for 39.86 per cent which went up to Sh195.53 in Nairobi. There are nine different taxes and levies charged on petroleum products in Kenya.

In contrast, taxes and levies account for 33 per cent of the pimp price of super petrol in Tanzania. Out of the Sh159.99 (TSh2,781) that motorists in Arusha pay per litre of super petrol, Sh52.47 (TSh912) is what the government takes as taxes and levies.Also the country has five taxes and levies, compared to Kenya's nine, with the Treasury as well as state corporations taking a much lower cut. The primary petroleum taxes in Tanzania are fuel levy, excise duty and petroleum fee while the others are levies to state agencies and are in the form of wharfage fee and regulatory levy.

In Tanzania, analysts point out that the retail cost of diesel has reduced 11 per cent since May this year. In Kenya prices have moved in the opposite direction, growing by 10 per cent from Sh162 per litre of diesel in April to Sh179.67 this month.

The government of Rwanda has in certain instances reduced taxation on petroleum products in a bid to tame retail prices. This was the case in December last year, when oil prices had increased in November.

"Although the global prices for fuel have increased, the government of Rwanda has maintained the current fuel pump prices applicable in Kigali, to mitigate the eventual adverse impact on inflation. Since May 2021, the government has stabilised fuel pump prices by foregoing some taxes on imports of selected petroleum products," said Rwanda om December 2021.

Kenya's Parliament has in the past noted that the local tax regime on petroleum prices has been hurting Kenyans.

"Kenya has the highest prices of fuel compared to her neighbouring East African Countries. This is as a result of the high contribution of taxes on its prices," parliament," said the National Assembly's Committee on Finance and National Planning in 2021 in a report after an inquiry as to high fuel prices at the time.

Pump prices had significantly reduced in 2020 following the global weak demand following the outbreak of Covid-19 and the subsequent measures aimed at curbing the spread of the pandemic. But on resumption of economic activities globally, oil prices started going up and in late 2020 and early 2021, Kenyans felt that local pump prices were rising at a higher pace than the global petroleum trends. The uproar triggered the Parliamentary inquiry.

Over the course of the inquiry, taxation of fuel was pinpointed as a cause of pain for Kenyan motorists and industries. The committee appears to have been swayed by the arguments of the National Treasury and other government agencies that defended the high taxation as necessary to sustain both the state entities as well as tax revenues.

"Any variation in taxes and levies will have knock-on effects on the fiscal framework of the country. These taxes and levies account for about 14 per cent of the annual national government revenues and a reduction will mean that either the national government reduces its expenditures or incur more debt to bridge the financing gap," it said.