Retailers Fail to Lower Gas Prices Despite Tax Cut

Gas retailers are still selling cooking gas at high prices even after the government halved the taxes on the product.

The Finance Act 2022, which took effect on Friday last week, saw value added tax (VAT) cut from 16 percent to eight percent on liquefied petroleum gas (LPG) a move meant to cushion households against commodity high prices.

President Uhuru Kenyatta was forced to halve VAT on fuel in 2018 to eight percent, after the introduction of the full tax prompted protests from motorists and business lobbies. 

The cut comes a year after Parliament reinstated the 16 percent VAT on cooking gas and crude prices, which has seen a rise in prices on the products since June last year when refilling a 13kg gas cylinder rose by Ksh.900.

Retailers have, however, failed to lower the prices despite the cut on taxes. Energy and Petroleum Regulatory Authority (EPRA) Director General Daniel Kiptoo expressed that retailers are expected to lower the prices to reflect the eight percent lower taxation.

Kiptoo attributed the delay to old stock which was priced under previous taxation, further adding that dealers could be looking to lower the prices once they bring in new stock.

EPRA does not set cooking gas prices which means that its prices are determined by market forces and the product’s demand and supply, giving dealers leeway to change product prices in order to fit in the market dynamics.

EPRA Director General said construction of a common user facility would help bring certainty in the cooking gas market which enables the government to control prices  for liquefied petroleum gas (LPG) as it does of petrol, diesel and kerosene.

A draft proposed by the National Tax Policy stated that all goods should be taxed at 16 percent while the preferential rate should not be lower than 12 percent. If the proposal is adopted, the Treasury is seeking to set the value added tax VAT rate at 12 percent, to set the stage for an increase in taxes on products such as cooking gas and fuel.

“Kenya’s tax policies are spread across various tax laws, which are amended every year during the national budget process,” states the draft policy.

The Treasury says levying a lower VAT of eight percent on goods such as fuel, is an undue advantage over other products taxed at 16 percent. The Treasury cut VAT charged on cooking gas by half, which is a relief to consumers amid the global rising prices of the commodity and other petroleum products.

The state-owned Kenya Pipeline Company (KPC) is set to build an LPG storage facility at the Kenya Petroleum Refineries Ltd in its efforts to streamline importation of cooking gas. Private players who import cooking gas are free to set their prices.

Building a common user facility would enable LPG to be imported through an open tender, where firms compete to import the cheapest LPG.