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The committee also recommended the reduction of the fuel tax rate by a half, in a move likely to be contested by the National Treasury which had warned such action would trigger a budget funding crisis/FILE


House Finance Committee recommends halving of fuel taxes

NAIROBI, Kenya Oct 13 – National Assembly Committee on Finance has recommended reduction on taxes and levies through tax law amendments to cushion Kenyans from the spike in fuel prices in the recent months.

The committee tabled a report before the House on Tuesday seeking to reduce the Petroleum Development Levy charged on Super Petrol and Diesel from Sh5.40 to Sh2.90.

Fuel consumers have been contributing to the levy kitty provided for fuel price stabilization in the country, with the highest contribution per litre of fuel being Sh5.40 under the Petroleum Development Levy Fund Order (2020) leading to an increase in the cost of petroleum products.

“Revoke the Petroleum Development Levy Order, 2020 (Legal Notice No.124 and 174 of 2020); and amend the Petroleum Development Fund Act, 1991 by providing the amount that shall be charged to the PDL per liter of Super Petrol and Diesel,” read the report in part.

The committee also recommended the reduction of the fuel tax rate by a half, in a move likely to be contested by the National Treasury which had warned such action would trigger a funding crisis.

The exchequer had said that fuel 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.

Lawmakers who interrogated treasury officials urged the ministry to use legal financial mechanisms to bridge the gap.

“The National Treasury should prepare Supplementary Estimates for consideration which shall reflect the reduction in revenue occasioned by the amendment,” the report recommended.

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Other taxes which the committee wants lowered include the excise duty VAT on LPG, the ream recommending the halving of the prevailing 16 per cent rate which has been linked to an aggressive increase in the price of cooking gas.

The committee further asked the House top order the National Treasury to initiate the process of reverting Sh18.1 billion that was misapplied on infrastructure spending back to the Petroleum Development Levy Fund for purposes of stabilization of fuel prices.

The report’s revealed that Sh18.1 billion meant for price stabilization had been channeled to fund infrastructural projects.

“The total revenue collected from the Petroleum Development Levy amounted to Sh25.88 billion in the FY 2020/2021. The National Treasury disbursed Sh1.6 billion to the State Department for Petroleum for fuel stabilization, disbursed Sh2.2 billion to the Ministry of Energy and disbursed Sh18.1 billion to the State Department for Infrastructure,” stated the report.

While appearing before the committee, Treasury Principal Secretary Julius Muia defended the ministry saying they acted within the law to channel the funds to other development programs.

He said it was unfortunately that once the money was depleted the exchequer could not reallocate other funds to the levy kitty due to lack of structures.

“From the structure it is difficult to fund it from the exchequer and that’s why we look at the balance of the levy kitty when we are requested to give subsidy. We are currently doing consultation to see whether there is a way given the restriction of the law, we can fund the kitty, given the circumstances we are in,” Muia explained.

The finance committee has sought to offer remedy to the misapplication of the fund by recommending amendments on the Petroleum Development Levy Act, 1991 to provide for formation of a board which will guide the utilization of the stabilization fund.

“The Fund shall be managed by a Board similar to the Roads Maintenance Levy. The Fund shall be used for stabilization of fuel prices and for matters relating to the development of common facilities for distribution or testing oil products,” the report recommended.

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The Ministry of Petroleum said it was unable to cushion Kenyans from the high fuel prices in September after it established that the kitty was running low on funds.  

“In a letter, Ref. 1194/21/01/(7) dated 6th September 2021, the CS National Treasury did not approve the Ministry’s (Petroleum) request owing to the fact that the Petroleum Development Levy collections were lagging behind the target and the funding from PDL was not sufficient to cater for the stabilization mechanism for petroleum prices,” read the report in part.

Since 1991, the PDL kitty has lacked a legal framework to guide the management of the fund.

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