9 types of taxes imposed on Kenya's fuel as CS Chirchir warns of further price hikes

Speaking before the National Dialogue Committee at the Bomas of Kenya on November 6, Energy CS Davis Chirchir said that international crude prices could go up to $150 per barrel because of the conflict, which would translate to a price of Sh300 per litre at the pump.

He added that the government cannot do much about international pricing of petroleum.

This warning comes as the Energy and Petroleum Regulatory Authority (EPRA) prepares to announce new fuel prices next week.

Energy CS Davis Chirchir appearing before National Assembly Energy Committee at Parliament buildings, Nairobi on November 6, 2023 Energy CS Davis Chirchir appearing before National Assembly Energy Committee at Parliament buildings, Nairobi. Pulse Live Kenya

During the last review for the October-November cycle, EPRA increased the prices of petrol by Sh5.72 per litre, diesel by Sh4.48, and kerosene by Sh2.45, pushing petrol prices in Nairobi to a record high of Sh217.36 per litre, with diesel selling at Sh205.47 and kerosene at Sh205.06.

The increase in fuel prices has led to an increase in the prices of other commodities, causing citizens to complain about the high cost of living.

The Energy CS said that his ministry is working towards ensuring that soaring fuel prices do not plunge Kenya into an economic crisis.

He also mentioned that they plan to reduce power costs by negotiating with power producers to lift the burden of the purchase price from consumers.

Several factors contributing to the rise in petrol prices

The cost of crude oil

The cost of crude oil is the largest component of the retail price of gasoline, and it varies over time and across regions of the country.

Many factors affect crude oil prices, including political instability or conflict in oil-producing countries, supply and demand, and production cuts by oil-producing countries.

Refining costs and profits

Refining costs and profits are the second-largest component of the retail price of fuel.

Refiners charge more for higher-octane fuel, and premium-grade petrol is the most expensive.

A pump attendant fills the tank of a car at a petrol station in September 4, 2018 in Nairobi as a 16 per cent VAT on petroleum products was decided and fuel distributors refused to collect stocks from depots. (Photo by SIMON MAINA/AFP via Getty Images) Pulse Live Kenya

Distribution and marketing costs and profits

Distribution and marketing costs and profits are the third-largest component of the retail price of fuel.

These costs include the costs of transporting fuel from refineries to terminals and then to gas stations, as well as the costs of operating and maintaining gas stations.

Taxes

Taxes are the fourth-largest component of the retail price of fuel. In Kenya, fuel is subjected to nine types of taxes accounting for more than 50% of the cost.

The nine taxes imposed on Kenya's fuel include;

Excise tax
18% VAT
Road maintenance levy
Petroleum development levy
Import declaration fee
Petroleum regulatory levy
Railway development levy
Anti-adulteration levy
Merchant shipping levy

Overseas conflict

The price of oil may also rise due to political instability or conflict in oil-producing countries.

For example, the ongoing war between Israel and Hamas has been cited as a potential cause for the rise in petrol prices in Kenya.

Financial practices of oil companies

In periods of economic volatility, oil companies often advise their firms to reduce spending on new production. This saves cash for emergencies and inflates the price of oil by restricting supply, which increases profit.