Effects of fuel tax on households and motorists

The Kenya Kwanza administration hopes to raise Ksh50 billion from fuel taxes, thus the higher fuel prices, which are anticipated to take effect on July 1, would also be more painful for drivers, distributors, and manufacturers.
Consumers will be charged more for food, transportation, and electricity as a result of these additional costs.
After the new taxes, a litre of super gasoline in Nairobi will cost Ksh193.77 instead of the current Ksh182.04; diesel may cost Ksh177.94 instead of Ksh167.28. Consumers might anticipate paying Ksh171.71 for a litre of kerosene instead of the current Ksh161.48.
After a contentious debate in the National Assembly on Wednesday, 184 MPs voted to preserve the change as a part of the Finance Bill 2023 while 88 MPs protested.
After the new rate of VAT on petroleum goods goes into effect, the cost of living, as determined by the consumer price index, is anticipated to increase marginally. The rate of inflation is expected to increase from 8% in May.
For the most of the last year, consumers have struggled with out-of-control prices because inflation in June of last year exceeded the goal upper limit of 7.5% and has been over the target ever since.
The rate of inflation for more expensive food increased to 8% in May from 7.9% in April.
“The increase in inflation was largely due to an increase in prices of commodities under food and non-alcoholic beverages by 10.2%; housing, water, electricity, gas, other fuels at 9.7%; and transport costs at 10.1% between May 2022 and May 2023,” the Kenya National Bureau of Statistics noted.
Food, energy, and transportation expenses make up more than half of household budgets (57%), according to KNBS. Food prices are predicted to increase due to greater production costs brought on by rising diesel prices, which would affect mechanized farming and increase the cost of maintaining tractors and harvesters.
Additionally, the effects of fuel tax on households and motorists will be felt as charges will be surcharged on consumers’ monthly bills and covers additional costs or rebates as a result of fluctuations in petroleum prices and the amount of oil used in electricity generation, higher diesel costs would translate into more expensive energy.
The cost of filling up private and other commercial cars will go up, and bus fares will follow suit. This will result in higher transportation costs for both consumers and businesses, particularly those in the transportation and logistics industry.
Higher inflation is anticipated to fall harder on lower-income families than it will on higher-income ones.
The Central Bank of Kenya reported that in March, the inflation rate for lower-income households in Nairobi was 9.04%, compared to just 6.75% for upper-income households.
According to the CBK, lower-income households in the city’s capital are those who spend Ksh46,355 or less per month, or 70.89% of all households in Nairobi.
Additionally, the inflation rate was greater for homes outside of Nairobi, standing at 9.5%, compared to the city’s typical household’s rate of 8.43%. According to KNBS figures, 32.91% of the typical household’s income is spent on food.
The top 10 commodities for spending money include airtime for mobile phones, local transportation costs (including housing rent), meals at hotels and restaurants, beef, milk, beer, and bread.
Despite efforts to reduce the rate of the railway development levy and the import declaration fee, which are surcharges to the cost of landed petroleum from 3.5% to 2.5%, fuel prices have increased. It is largely anticipated that the National Assembly will approve the idea.
The Energy and Petroleum Regulatory Authority is anticipated to release the new prices on Friday next week, maybe without waiting for the next maximum pump price review date on July 14.
While lawmakers associated with the opposition opposed the changes because of how they would affect the cost of living, lawmakers associated with the Kenya Kwanza coalition, which is in power, supported the amendment because they believed it would strengthen the state’s finances and enable expenditures like road building and payments to the National Government Constituency Development Fund.