Oil dealers Petition MPs on 2019 tax

In an effort to increase their already slim profit margins, oil marketers have petitioned Parliament to be exempt from the two percent withholding tax on their fuel purchases.

The dealers testified before the National Assembly’s Finance and Planning Committee that the requirement, which went into effect in 2019, has reduced their profits and led to low margins because of fuel price controls.

According to the Finance Act of 2019, all businesses must deduct 2% of the cost of their taxable supplies and send the money to the Kenya Revenue Authority (KRA).

“Withholding Value Added Tax of two percent of the value of the product which is highly capitalised means that you are holding an amount that is seven times more than the margin realised on the same,” the dealers said through the Petroleum Outlets Association of Kenya.

“Businesses in price control industries should be exempted because their profits are already predetermined.”

Zero-rated and exempt products and services do not have VAT withheld from them. The Commissioner treats any VAT withheld in exempt and zero-rated supplies as tax paid inadvertently and will refund it.

Receivers of qualifying goods and services are required to withhold a portion of income tax from payments made to their suppliers and remit this to the revenue authority as an agent through the use of withholding tax.

The designated KRA agents must submit the two percent withheld VAT on or before the twentieth day of the month that follows the month in which the deduction was made.

The committee’s review of the Finance Bill, 2023 is expected to result in a decision on the petition, which will then be presented to Parliament.

The dealers are also basing their argument on the legal clause that permits businesses to request exemption from the KRA if they can demonstrate that the two percent withholding VAT deduction has left them in a persistent cash crunch for at least two years.

As dealers struggle with an unpaid Sh45 billion government bill for the fuel subsidy that was discontinued last month, there is a push to have oil marketers exempted from the requirement. This comes at a time when there is a severe cash shortage.

The small dealers who have been warned they will be subject to auctions for defaulted bank loans have been severely harmed by the compensation delays.

One industry that has lobbied Parliament to change existing tax laws or prevent the implementation of proposed tax increases in the Finance Bill, 2023, is the oil marketing industry.