Fund ERC, eliminate LPG levies and tax kerosene

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BY POLYCARP IGATHE

Adulteration of fuel has reached alarming levels in Kenya. Active petroleum industry players estimate that 80 percent of sold kerosene volumes go to adulterate diesel and petrol.

In 2010, the government stopped taxing kerosene, in a bid to cushion underprivileged Kenyan households from high cost of living.

Indeed a commendable and progressive policy option. However, years later, it is apparent that unscrupulous petrol dealers are the real beneficiaries of the no-tax policy on kerosene.

Petrol dealers out to make a quick buck increase profit margins by dosing quantities of kerosene into diesel and petrol. The illegal profiteering leads to untold suffering in the name of high maintenance costs by buses, matatus, trucks, and boda bodas due to frequent breakdowns. The high costs of maintenance are subsequently passed onto the Kenyan public – unreasonable bus fares and logistics costs.

Added to the cost of breakdown is colossal leakage of dollars and euros utilised to import vehicle spare parts. The economy may not sustain such loss of foreign exchange. The environment could also not sustain harmful fumes emitted by high number of vehicles using adulterated fuel.

Annually, government sacrifices Sh7 billion of revenue to sustain the no-tax policy on kerosene in the name of cushioning the poor.
The law is clear that the Energy Regulatory Commission (ERC) is mandated to enforce legal action to curb fuel adulteration.

Going by proportion and extent of the adulteration vice, ERC is overwhelmed. ERC appears under-funded and inadequately resourced to effectively police and apprehend perpetrators of fuel adulteration. Way too little effort is going to attend to a way too large an issue.

The Cabinet in Kenya must rise up to the challenge of ensuring law enforcement agencies and regulators are adequately resourced and appropriately compensated. Otherwise Kenya risks building a largely illicit economy.

The Kenya Revenue Authority (KRA), Central Bank of Kenya (CBK) and Retirement Benefits Authority (RBA) stand out as properly funded regulatory bodies. No wonder the resounding successes and advances of tax collection, financial services and pensions industry in Kenya.

Regulators in certain key economic sectors seem abandoned in terms of funding e.g. ERC in Energy, KEBS in manufacturing and weights & measures in trade to name a few. Government should prioritize funding of ERC. Kenya needs an able and effective ERC.
Bring back the tax on kerosene to contain rampant fuel adulteration, then institute no-tax policy on gas (LPG).

Gas should be the energy of choice across Kenyan households as opposed to wood, charcoal and Kerosene. LPG is clean fuel. It creates least greenhouse emissions, producing no smoke and no ash. Government Policy must accelerate LPG usage.

As it stands, government loses Sh7 billion by not taxing kerosene and gains only Sh1.4 billion by taxing LPG. Policymakers ought to ponder the fact, and take requisite action.

(Igathe is the Chairman PIEA & Director, KEPSA)

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  • muriithi

    Perhaps it is also time for the fuel price controls to go.

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