Members of Parliament (MPs) have taken steps to forestall an impending economic crisis by allocating Sh15 billion to the Ministry of Petroleum and Mining to pay for the gasoline subsidy program.
The Budget and Appropriations Committee added the amount to the Sh5.1 billion it had set aside for gasoline subsidies in a supplementary budget two debated by the National Assembly yesterday, bringing the total to Sh20.5 billion.
The program’s goal is to keep fuel prices from climbing to levels that would exacerbate inflation.
Earlier this week MPs complained that the sum had been cut by 84 per cent from Sh31.7 billion claiming that it would cause an economic disaster.
Kanini Kega, the committee’s chairman, stated that this was done to protect Kenyans from the high expense of living.
“If we don’t subsidize fuel, then we are not addressing the high cost of living many Kenyans are facing,” Kega said.
This comes after Deputy President William Ruto appealed to the Finance Committee allies to incorporate the Petroleum Products Tax Amendment Bill’s measures in the Finance Bill to address rising commodity prices holistically.
The committee proposed an Sh15.36 billion increase in the funding to the gasoline subsidy program in an amendment to the Appropriation Bill 2022.
Early this week, the Budget Committee warned that the Sh5.1 billion set aside for the next budget will be gone in three months, leaving the economy vulnerable to high gasoline prices and rising inflation.
“It is projected that the crude oil prices are unlikely to reduce due to the ongoing Ukraine-Russia conflict, the department may end up exhausting the Sh5 billion provided for the fuel subsidization program in the first quarter,” the committee warned.
Even though the leading presidential candidates have stated strategies to keep fuel prices low, notably through tax cuts, the Sh5 billion commitment would have been a challenge for the future administration.
Taxes account for up to 41 per cent of the cost of fuel, with a litre of petrol costing Sh150.12 containing Sh61.87 in taxes and levies, and a litre of diesel costing Sh131 containing Sh50.32 in taxes and levies. When global fuel prices began to rise in April of last year, the fuel subsidy scheme was implemented.
The Petroleum Development Levy, which was hiked from Sh0.40 per litre last year, is used to fund the scheme, with consumers paying Sh5.40 for every litre of petrol purchased at the pump.
While current fuel prices in Nairobi are Sh150.12 (petrol) and Sh131 (diesel), consumers would pay up to Sh176 per litre of petrol and Sh175 per litre of diesel without the subsidy, absorbing between 15 and 25 per cent of price shocks to safeguard consumers.
Petroleum Products Tax Amendment Bill, which was passed as a motion in the House last year and later developed into a Bill, proposes a reduction in the levy, which is currently charged at Sh5.4 per litre of petrol and Sh2.9 per litre of diesel, by revoking the Petroleum Development Levy Order, 2020, and amending the Petroleum Development Fund Act, 1991, to provide the amount that will be charged for the levy.
MPs also recommended lowering the VAT on cooking gas from 16 per cent to eight per cent.
The Bill has not been examined by the House since then, with Finance Committee chair Gladys Wanga stating that they completed their work and delivered their conclusion and that it is now up to the House Business Committee to schedule a debate.