Expensive fuel denies Kenyans major cost of living reprieve

3 minutes

The government’s move to double value added tax (VAT) on fuel denied Kenyans what would have been a major reprieve on the cost of living in July, fresh data from the national statistician shows.

While overall prices or inflation in the 12 months to July rose by 7.2 percent, the slowest since May last year, there was no reprieve at the pump as fuel prices trended upwards.

Some public transport providers increased fares to cushion themselves from the 16 percent VAT on petroleum products, the report from the Kenya National Bureau of Statistics (KNBS) shows.

Following the passage of the controversial Finance Act, 2023, fuel prices were adjusted upwards following the doubling of VAT on petroleum products from 8 percent.

“The Transport Index went up by 3.5 percent between June 2023 and July 2023 mainly due to increase in prices of petrol and diesel, which rose by 6.9 percent and 7.4 percent, respectively,” said the KNBS, which tracks changes in consumer prices over a 12-month period.

“During the same period, fares for some public transport routes went up”.

KNBS said

A litre of petrol retailed at an average of Sh195.32 in the review period up from Sh159.94 in July last year, hurting the middle class motorists whose personal cars run largely on this fuel.

Diesel, which is critical for running machines in factories, tractors on farms and large commercial vehicles, retailed at Sh180.42 a litre compared to Sh140.91 in July last year.

Matatu fare from Githurai to Nairobi’s Central Business District rose to Sh70 from Sh50 with matatu owners making good their threat to hike transport costs should the Finance Bill be passed into law.

President William Ruto assented to the Finance Bill 2023, which triggered a wave of Opposition-led protests in major towns such as Nairobi, Kisumu, Kisii, Nakuru and Mombasa.

The protestors said that some of the tax-raising measures contained in the new law were punitive and were going to hurt Kenyans who were already grappling with the high cost of living.  

The Court of Appeal recently lifted an order issued last month suspending the implementation of the Finance Act 2023 after Treasury CS Prof Njuguna Ndung’u argued that the government was losing half-a billion shillings daily following the freeze.

The CS moved to the appellate court through Attorney General Justin Muturi arguing that the government stands to lose about Sh211 billion in the current financial year. 

Despite the court order freezing the execution of the Finance Act, 2023, the government continued to implement the 16 percent VAT on petroleum products, which also include Kerosene.

The Finance Act has also contributed to the rise in mobile money transfer fees after the excise duty rate on fees was adjusted upwards to 15 percent from 12 percent.

This is likely to disrupt the country’s digital payment system which has been shaped by the mobile money transfer service.

However, prices of some food commodities such tomatoes, potatoes, cowpeas and cabbages dropped in the review. 

Cooking gas and electricity prices also dropped during the review period.

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