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Transport sector facing uncertainty over fuel levies

Major players in the transport sector in Nyeri are crossing their fingers as they await the fate of the Finance Bill 2023, which is currently before Parliament.

The bill, among others, proposes to hike fuel products (save for LPG) to a 16 per cent VAT hike from the current 8 per cent.

The existing VAT on petroleum products was introduced in 2018.

This was after the transition clause, which provided for an exemption of the VAT on such products for a period of two years, came to an end.

The government tabled the Finance Bill 2023 before the National Assembly on May 4, 2023, to enable Treasury to net additional revenues of up to Sh289.3 billion and stimulate the country’s economic growth by an estimated 6.1 per cent.

The government is in dire need of additional cash to finance the Bottom-up Economic Transformation Agenda (BETA) for inclusive growth amidst an economy that is caught up in a tight fiscal space, economic shocks wrought by a shilling on a free fall, and external debt obligations maturing in quick succession.

According to the Budget Policy Statement (BPS), the government intends to mobilise domestic revenues of up to Sh. 2.9 trillion in its Sh. 3.6 trillion budget for the 2023–2024 financial year, leaving it with a deficit of Sh. 768.2 billion.

But public transport players in Nyeri warn that any new hike in fuel prices will automatically mean an increase in the amount of money charged to their commuters.

They argue that even before the government announced plans to adjust the levy on petroleum products, the cost of doing business was already at its worst thanks to rising inflation fuelled by a depreciating shilling.

The operators now fear that an increase in fares will negatively impact their business in the event their clients decide to seek alternative modes of transport, including trekking to their places of work.

Laban Nderitu, a boda rider at the Nyeri Lower bus park, says that if fuel prices are to increase, the government should review the salaries of those in employment since they form the largest chunk of their passengers.

“Since we depend mostly on those employed customers, it is fair if their salaries are hiked to enable them to accommodate any new fares. This will be a win-win situation. We do not want them to complain when we increase our fares once the fuel prices shoot up,” said Nderitu.

Justus Nyakundi echoes his colleague’s sentiments and avers that an increase in the price of fuel will immediately put the prices of all basic items on an upward trajectory.

He nevertheless fears that Kenyans are so hard-pressed by the high cost of living that it would be untenable to increase fares for his customers without running the risk of losing them.

“Sometimes an increase in taxes is not the issue. What we fear most is losing customers who are our very lifeline. Our customers find it easier to haggle over the amount of money we charge, unlike in other businesses where prices are often fixed. If we are therefore going to adjust our fares upwards, we can as well look for something else to do since they will certainly run away,” he cautions.

For Maina Muthoni, who operates a hailing cab within the town CBD, any levy that will lead to an increase in fuel prices is akin to a death sentence to the transport industry, which has been trying to find its footing since the end of the COVID-19 mandatory health regulations that almost drove the sector under.

Muthoni argues that were the government to increase VAT on petroleum products, it should at the same time review the salaries of its employees, who form the largest percentage of their clients.

“The government should first review the amount of money it pays out as salaries to its employees before it goes ahead with implementing new taxes. Of importance, the government should revisit the issue of subsidies on basic items such as fuel and food to ease the suffering of the ordinary person who is barely making it by. Otherwise, if Parliament ratifies the new taxation bill, many of us will soon be out of business,” he stated.

Apart from the proposed VAT hike on petroleum products, other notable changes in the Finance Bill include the introduction of a new 35 per cent tax rate for those earning more than Sh 500,000 a month, the taxation of content creation, and the trade in digital assets such as cryptocurrency.

Other levies include the introduction of a 3 per cent deduction from employees towards the affordable housing programme, a proposal that has elicited stiff resistance from workers’ unions who argue that such a move will drive hundreds of government employees into perpetual penury.

If the bill is passed by Parliament, President Dr. William Ruto is expected to assent to the new tax regulations that will become law by July 1 of this year.

Already, audit and tax advisory firm KPMG has warned that the introduction of new taxes will only worsen an already bad situation for Kenyans, the majority of whom are grappling with the high cost of living.

The firm notes that the new bill, combined with increases in NHIF and NSSF contributions, will prove a tough sell in a country where 16 per cent of the population lives below the international poverty line.

“This (VAT on fuel) proposal is likely to impact the prices of transport and the production of goods, increasing inflationary pressure in the economy… When combined with the proposed changes in NHIF and the recent changes in national pension contributions, the impact on employees will be severe, especially at a time when many are grappling with the high cost of living, “reads part of the KPMG report analysis on the Finance Bill 2023.

By Samuel Maina and Hellen Ndirangu

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