The new tax on fuel could dampen this East African country’s economic growth

NAIROBI (Reuters) – Kenya’s economic growth momentum for this year could be snuffed out if a widely unpopular 16 percent Value Added Tax on fuel is maintained, the country’s chamber of commerce said on Friday, pointing at higher prices of goods and transport.

The tax, which came into force on Sept. 1, is part of a government bid to boost revenue collection in order to narrow its fiscal deficit and secure an extension of a standby credit facility from the International Monetary Fund.

The High Court on Thursday ordered a temporary suspension of the tax, but prices at petrol stations visited by Reuters on Friday had not come back down.

“We are asking the government to re-think its options for financing its development and recurrent expenditure instead of overtaxing various products that already bear large tax burdens,” the Kenya National Chamber of Commerce and Industry (KNCCI) said in a statement.

The Treasury could not immediately be reached for comment.

The finance ministry expects economic growth to rebound to 5.8 percent this year after drought, jitters over a presidential election and sluggish private sector credit growth cut last year’s growth to 4.9 percent.

“The recent resurgence of the economy will be negatively impacted by this move and this will reverse any growth we have seen in the past year,” KNCCI said.

The new VAT on fuel sent the retail price of petrol up by 12 percent per litre. Transport operators have also raised their charges and some petrol dealers have gone on strike to protest against the new tax, causing fuel shortages. The tax was originally included in a law passed in 2013, but was postponed several times, amid protests about its impact.

The revenue authority introduced the tax on Saturday but President Uhuru Kenyatta could still reverse it by signing a bill postponing it again.

Justin Muturi, the speaker of the national assembly, told Reuters on Friday the legislature was consulting with the finance ministry to find a way forward on the tax.

Kenyan businesses and ordinary people routinely complain of a heavy tax burden. The chamber of commerce said the government could widen the tax base and increase the rate of tax compliance to 50 percent from the current 17 percent.

It also urged the government to cut expenditure, reduce wastage of public funds and deal with corruption, which some past studies have found account for the loss of up to a third of the government’s annual budget.

Editing by Ingrid Melander; Editing by Peter Graff

Related Content

Uganda Securities Exchange CEO: How the bourse is adapting to COVID-19 disruptions

The share index at the Uganda Securities Exchange dropped by about 4 percentage points as a result of the COVID-19 pandemic though the bourse’s CEO Paul Bwiso remains upbeat about the performance, He spoke CNBC Africa to for more.

AfCFTA: How to get the free trade deal back on track amid COVID-19 crisis

The African Free Continental Free Trade Area agreement was scheduled to be operationalized on the 1st of July but due to the COVID-19 pandemic, various heads of state have agreed to a new date for what will become the continent’s biggest trade deal, CNBC Africa to Albert Muchanga, AU Commissioner for Trade and Industry on the way forward for the AfCFTA deal.

Uganda Securities Exchange CEO on how COVID-19 is impacting the bourse

The economic turmoil caused by the COVID-19 pandemic has had wide severe impact on financial markets not leaving behind stocks, bond and commodity markets. Uganda Securities Exchange CEO, Paul Bwiso joins CNBC Africa for more.

COVID-19: How the pandemic is accelerating the digitalization of healthcare

The COVID-19 pandemic has caused huge disruptions in healthcare provision, highlighting the need to adopt and invest in digitalization. Dr. Wanjeri Millicent Loice, Director and Content Manager, Toto Health Kenya joins CNBC Africa for more.

Subscribe to our newsletter

Sign up for free newsletters and get more CNBC AFRICA delivered to your inbox

More from CNBC Africa

Up to 50,000 South Africans could die this year of COVID-19

President Ramaphosa also admitted that there was a shortfall of 12000 healthcare workers. Despite this there were 28000 hospital beds as well as 37000 private quarantine beds for those unable to isolate at home, along with 1700 ventilators.

Sudan’s 37 dry years are over for its non-Muslims

Non-Muslims will no longer be criminalised for drinking alcohol in private, Justice Minister Nasredeen Abdulbari told state television. For Muslims, the ban will remain. Offenders are typically flogged under Islamic law.

One of the influential fathers of power in Africa dies aged 90

There is no doubt that his integrity, credibility, drive, inherent humility and care for people, also profoundly helped to motivate Eskom staff during many difficult times.

Building Africa’s Prosperity EP7: Addressing infrastructure challenges in SA’s municipalities

Building Africa's Prosperity places the spotlight on economic growth and filling the infrastructure gap on the African continent. In this episode, CNBC Africa's Chris Bishop and his guests talk about Infrastructure Challenges in Municipalities....

Partner Content

Tata International concludes a securitization transaction for its African Subsidiaries

UAE financial centers act as a gateway to benefit African businesses GCC, July 13th, 2020: Tata International Limited (TIL)...

Uber launches its largest region-wide initiative in partnership with Mastercard

Uber, in partnership with Mastercard to provide 120,000 free trips to frontline workers in MEA, including South Africa, Nigeria, Kenya, Ivory Coast...

Trending Now

COMMENT: AfCFTA is economic medicine Africa needs to recover from the covid-19 pandemic

he vast market created by AfCFTA will provide an immediate boon to nascent plans being guided by the African CDC, NEPAD and others to produce various critical healthcare items such as pharmaceutical compounds, PPE and ventilators in countries such as Nigeria, South Africa and Kenya.

More than 70 workers test positive for COVID-19 on an English farm

The number of new confirmed COVID-19 cases across Britain each day has been falling from a peak of more than 6,000 in April to 650 in the latest figures released on Sunday, despite wider availability of testing.

African born tycoon Elon Musk Tesla slashes prices as pandemic weighs heavily

The company headed by Elon Musk this month posted a smaller-than-expected fall in car deliveries in the second quarter, resilient results despite the pandemic that hit the global auto industry.

COVID-19: No more booze for now says Ramaphosa

"We have to make sure there are sufficient beds in hospital and they are not occupied by people who have been taking alcohol,"says Ramaphosa.
- Advertisement -