Illegal Diesel Taxes Risks Energy Ministry Ksh11bn Claim

The Ministry of Energy risks a Ksh11 billion refund claim from motorists after Kenya Revenue Authority (KRA) continued to collect higher levies on diesel, 11 months after a law raising the fees was quashed.

KRA has been collecting the Petroleum Development Levy (PDL) at a rate of Ksh5.40 per litre of diesel consumed despite Parliament directing the energy ministry to revoke a legal notice in October last year that had increased the same. The revocation should have caused the taxman to revert to the previous rate of Ksh0.40 per litre.

However, insiders at KRA said the agency went on collecting the levy at the higher rate after it received guidance from the Ministry of Energy but has now been left with a legal nightmare since the ministry failed to follow through on its end to legalize the tax by the issuance of a new gazette notice.

The levy has been partly blamed for the high prices of diesel and super petrol. A litre of diesel would be retailing at Ksh136 instead of Ksh140 if the levy was charged at the rate of Ksh0.40.

“The authority collects PDL as an agent of the Ministry of Petroleum and Mining in accordance with the Petroleum Development Fund Act and as provided in the various Legal Notices over time,” insiders at KRA said adding that the explanation would apportion blame to the ministry, and it did not want to point fingers.

Petroleum Cabinet Secretary John Munyes and Solicitor General Kennedy Ogeto did not respond to queries while Petroleum Principal Secretary Andrew Kamau said he is not aware of the matter.

“Yes, we are aware that the legal notice was revoked. We did a corrigendum to correct the issue,” Daniel Kiptoo, Energy and Petroleum Regulatory Authority Director General, said on Wednesday.

The taxman collected an estimated Ksh11.05 billion from motorists as PDL from diesel between October last year and June. The amount could have been Ksh818.67 million if the rate was based at Ksh0.40 for every litre.

The estimated collections are based on consumption figures from the Epra that show motorists bought 2,046,690,720 litres of diesel between October last year and June.

Mr. Munyes gazetted the notice in May last year and tabled it in Parliament for approval to correct a printing error where diesel had been omitted in the regulations published in July 2020, exposing the government to lawsuits.

However, Parliament quashed the notice saying there was no public participation before its gazettement forcing Mr. Munyes to revoke it in October last year.

The regulations that were published in July 2020 increased PDL on diesel and super to Ksh5.40 per litre from Ksh0.40 as the State sought more cash for the fuel subsidization kitty.

“The Petroleum Development (Amendment) Order Levy, 2021 is hereby revoked,” Mr. Munyes said in the legal notice dated October 21, 2021.

PDL was lowered to Ksh5.40 per litre from Ksh0.40 in July 2020 but diesel was omitted from the list of fuels set to be charged at the new rate.

There are no public records that show a fresh legal notice was tabled after Parliament rejected the one published by Mr. Munyes in May.

The levy is charged per litre of super, diesel and kerosene and provides cash for the fuel subsidy that Kenya has tapped since April last year to keep pump prices low amid the spike in global costs of crude.

The costs of energy and transport have a significant weighting in the basket of goods and services that is used to measure inflation in Kenya. The economy uses diesel for transportation, power generation and running of agricultural machinery with a direct impact on the cost of farm produce.

All legal notices for fuel prices published by Epra since October last year include PDL at a rate of Ksh5.40 as one of the 10 levies and taxes factored in setting prices of super, diesel and kerosene.

Diesel accounts for the biggest contributions given that it is the most used fuel with an average of 227.84 million litres every month compared to the 179 million litres of super petrol consumed per month.

PDL had raised Ksh33.72 billion in the nine months to March, according to official data from the Department of Transport. PDL is one of the levies targeted for reduction in a bid to lower pump prices in the long term by cutting the contribution of taxes and levies.

The outgoing Parliamentary committee on Finance and National Planning approved a Bill that seeks to cut PDL by nearly half to Ksh2.90 per litre and lower Value Added Tax on petroleum products from eight to four percent.

The 12th Parliament did not adopt the Petroleum Products’ (Taxes and Levies) Amendment Bill, 2021 and the legal changes are likely to be a priority item for the new Parliament.

Costly diesel has significantly contributed to the high cost of living due to the impact of the fuel on the economy.