Statement on the VAT Charged on Petroleum Products

The decision to charge 16% Value Added Tax (VAT) on all petroleum products – petrol, diesel and kerosene – will negatively affect not only the industry but also raise the cost of living for Kenyans.

By charging the 16% VAT, manufacturers are subject to an increase in the cost of transportation of raw materials and finished products, and the increase in the cost of power, among other overhead costs.

The business environment in Kenya is increasingly becoming cost disadvantaged and a great disincentive for Foreign Direct Investment. To stay afloat, business will have to make very hard and drastic decisions of whether to shoulder the extra cost or pass over the tax burden to already overburdened consumers in order to meet their overhead costs.

The Big Four Agenda has singled out Manufacturing as one of the key drivers of economic growth. The Agenda seeks to increase the sector’s contribution from the current 8.37% to 15% to the GDP by 2022. The current move by Treasury, despite ongoing parliamentary debate to repeal or suspend the implementation of the VAT from fuel under Finance Bill 2018, undermines the cost concerns raised countrywide by the citizenry. Such fiscal policies will definitely undermine all Pillars of Big Four Agenda.

The manufacturing sector is poised to grow at 36% year on year up to 2022 under The Agenda. However, high and multiple taxations, unpredictable and unstable policy environment, high costs of energy, scarcity of the necessary technical skills and the high cost of labour have hampered business growth and expansion in the country and upscaling further manufacturing from low technology to medium and high technology.

The increase in the cost of doing business goes against all the efforts made towards the attainment of the Big 4 Agenda and improving the livelihoods of our Citizenry. With these unfavourable fiscal trends, coupled with shrinking economic performance, the future is rather bleak as world oil prices are on increase to the current average of US$ 68.8/barrel from US$ 50/barrel three years ago.

We need to look at reducing the overall cost of living, improving purchasing power and standard of living for all, including the reduction of VAT on items such as sugar, milk, tea leaves, rice, cooking oil and petroleum products. If the costs of these products come down, Citizens are then able to save substantial amounts of money to afford other basic amenities.

As Industry, we believe the Finance Bill 2018 will remedy this once enacted.