Tuesday, October 19, 2021
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Fuel tax cuts drive a hole in Sh37bn’s budget

Economy

Fuel tax cuts drive a hole in Sh37bn’s budget


The chair of the National Assembly Finance and Planning Committee, Gladys Wanga (Homa Bay Women’s Representative). FILE PHOTO | NMG

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Summary

  • The Treasury will be forced to seek an additional Sh37.6 billion to cover a budget deficit caused by lower taxes and taxes on fuel and cooking gas.
  • Last night MPs backed a report by the National Assembly Finance committee that will cut pump prices by at least 12 shillings per liter after they rose to an all-time high in the month through October 14.
  • The committee advised the Treasury to prepare alternatives to raise 22 billion shillings following a cut in value added tax (VAT) from eight percent on petroleum products to four percent.

The Treasury will be forced to seek an additional Sh37.6 billion to cover a budget deficit caused by lower taxes and taxes on fuel and cooking gas.

Last night MPs backed a report by the National Assembly Finance committee that will cut pump prices by at least 12 shillings per liter after they rose to an all-time high in the month through October 14.

The committee notified the Treasury to prepare alternatives to raise 22 billion shillings following a cut in value added tax (VAT) from eight percent on petroleum products to four percent.

The budget hole could also force the Treasury to cut spending in an effort to control the fiscal deficit as the country heads for a heavily loaded general election that is expected to slow economic activity.

The reduction of the Petroleum Development Tax (PDL) from Sh5.40 to Sh2.50 per liter will leave a funding gap of Sh11 billion.

Gladys Wanga, who chairs the Finance committee, said the Treasury will also lose 4.6 billion shillings following the reduction of the VAT on liquefied petroleum gas (LPG) from 16 percent to eight percent.

“If we adopt this report and approve the proposals contained in the Petroleum Products (Taxes and Levies) (Amendment) Bill, 2021, we will reduce pump prices by Sh12 per liter.

“On the other hand, these recommendations will result in a loss of revenue in terms of VAT of Sh22 billion, VAT on LPG of Sh4.6 billion and other losses including PDL of Sh11 billion,” said Ms. Wanga.

The Treasury will also face the challenge of increasing revenue after MPs proposed exempting fuel from the annual inflation tax review.

The bill seeks to reduce the price of diesel, gasoline and kerosene after the public uproar.

Following the Chamber’s intervention on the abnormal increase in pump prices, the Energy and Petroleum Regulatory Authority (Epra) cut pump prices by Sh5 for gasoline and diesel and Sh7.28 for kerosene.

Motorists in Nairobi will pay Sh128.74 per liter for gasoline over the next month, Sh110.60 for diesel and Sh103.54 for kerosene.

In last month’s review, gasoline prices rose Sh7.58 per liter of gasoline to Sh134.72 in Nairobi, while diesel rose Sh7.94 to Sh115.6 per liter.

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