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EPRA report reveals how Kenya's fuel consumption dropped after VAT hike

in June 2023, MPs voted to double fuel VAT from 8% to 16%

Fuel inflation was the key driver of overall consumer prices in Kenya in the past year. Image: Nation Africa

A new report released by the Energy and Petroleum Regulatory Authority (EPRA) has unveiled a significant drop in petroleum consumption in Kenya during the first quarter of the 2023/24 fiscal year.

The decline is attributed to the government's decision to raise the Value Added Tax (VAT) rate on petroleum products from 8% to 16%.

In June 2023, Kenyan MPs voted to double the value-added tax (VAT) levied on fuel to 16%.

This decision was met with mixed reactions, with some arguing that it would add to the rising cost of living.

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The report, covering the period from July to September 2023, provides detailed insights into the impact of the VAT hike on different petroleum products.

Kerosene consumption experienced a substantial year-on-year decline of 47.6%, while super petrol and diesel saw decreases of 2.83% and 2.29%, respectively.

Overall, the consumption of petroleum products witnessed a 3.58% year-on-year decrease during this period.

The sharp reduction in petroleum consumption is directly linked to the amplified VAT rate, rendering petroleum products more expensive for consumers.

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Many Kenyans opted to limit their usage of private cars and adopt public means of transport.

Kerosene, often utilized by many low-income households for cooking and lighting, faced a particularly pronounced decline in demand due to the price surge.

The decrease could also be attributed to government's efforts to encourage low income households to adopt clean energy options such as gas.

Beyond affecting individual consumers, the increased VAT rate has adverse effects on the broader economy.

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Businesses and consumers alike are grappling with increased costs, potentially leading to a dampening effect on economic growth.

The government, acknowledging the concerns about the rising cost of living, has pledged to implement measures to address the issue.

However, the effectiveness of these measures in reversing the decline in petroleum consumption remains uncertain.

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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.

  1. Excise tax
  2. 18% VAT
  3. Road maintenance levy
  4. Petroleum development levy
  5. Import declaration fee
  6. Petroleum regulatory levy
  7. Railway development levy
  8. Anti-adulteration levy
  9. Merchant shipping levy

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