The National Treasury estimates it will collect an additional Sh33 billion per year if a 16 percent Value Added Tax is imposed on a fuel.
The VAT on petroleum products will see motorists pay Sh125 per litre of super petrol, up from the current Sh107.92 while diesel will retail at Sh111.
Treasury Chief Administrative Secretary Nelson Gaichuhie has told the Senate Energy Committee that the Government has scheduled to implement the controversial VAT by September 1, 2017.
The members of the Senate’s Energy Committee have however questioned the move saying it will dampen economic growth, as higher fuel costs eat into production costs.
“Consumers in far-flung towns will pay even higher prices arising from added costs like transport, the sum of which forms the principal amount on which VAT is levied. It will be a double tragedy for motorists because global oil prices are on the rise, increasing cost for net importers such as Kenya,” Narok Senator Ledama ole Kina, a member of the committee, said.
The IMF has in the past said Kenya needs to do away with the tax exemption on fuel as part of a wider plan to increase revenues, reduce the budget deficit and ultimately slow down the debt pile up.
It has been reported that IMF has set the removal of the exemption as part of its conditions on the resumption of precautionary credit facility that the country can draw in the event of economic distress.
Gaichuhie, however, refuted the claims that IMF is behind the push saying Treasury was trying to increase its revenue collection to offer Kenyans better services.
“We are only trying to give Kenyans better services as per our mandate, a better health care system, better roads and everything else. This really has nothing to do with IMF,” he said.
Petroleum has been exempt of VAT, although it is one of the most taxed commodities in the country with about 42 percent of what is paid for a litre of petrol going to the state in terms of taxes and levies, according to a Parliament finding.
The increase in VAT was first introduced in 2013 but was deferred in 2016 when the government handed a two –year relief in September 2018 at the earliest.