The government is considering additional measures to cushion Kenyans from rising fuel prices, including extending the reduced 8 per cent VAT on petroleum products beyond October and introducing further subsidies if global oil prices remain elevated.
National Treasury Cabinet Secretary John Mbadi said the government was exploring additional funding options that could be used to subsidise fuel prices as it monitors the impact of the ongoing conflict in the Middle East on international oil markets.
Mbadi spoke on Tuesday, August 11, during a media briefing at the Treasury Building, just days before the Energy and Petroleum Regulatory Authority (EPRA) was expected to announce new fuel prices for the August - September pricing cycle.
With the current three-month extension of the 8 per cent VAT relief set to expire in October, Mbadi said Treasury was assessing whether the tax cut should be extended further.
He said the decision would largely depend on how the unpredictable situation in the Middle East develops and its impact on global crude oil prices.
“You know the situation in the Middle East is quite unpredictable, and I do not want to talk about it with authority. We will monitor the situation as it unfolds,” Mbadi said.
The CS explained that Treasury was weighing the need to collect more tax revenue against the potential economic impact of higher fuel prices.
According to Mbadi, increasing fuel costs could worsen inflation, raise operating expenses for businesses and put additional pressure on households, potentially causing greater damage to the economy than the revenue generated through higher taxation.
“As much as we are looking for tax revenue in terms of VAT, we must understand that if it is causing inflation, then it is going to have more harm on the economy. So we are balancing the two,” he said.
Treasury is also exploring additional sources of funding that could be used to subsidise fuel prices if international market conditions deteriorate further.
The latest considerations come after the government extended the reduced 8 per cent VAT rate on petroleum products for three months in July. The relief had initially been introduced as part of efforts to cushion consumers from the impact of the Middle East conflict and rising global oil prices.
Energy and Petroleum Cabinet Secretary Opiyo Wandayi also announced a Ksh945 million subsidy from the Petroleum Development Levy for the July - August pricing cycle. The funds were intended to help maintain prevailing pump prices.
The government has also continued to rely on its Government-to-Government fuel import arrangement, which authorities say has helped maintain fuel supplies despite disruptions to shipping routes in the Middle East.
The latest measures will be closely watched ahead of the next EPRA fuel price review, as motorists and businesses await clarity on whether pump prices will rise or remain relatively stable.
Under the prevailing prices, a litre of super petrol costs Ksh214.03 in Nairobi, while diesel retails at Ksh222.86 and kerosene at Ksh191.38.
The pressure on fuel prices comes as Treasury projects that Kenya’s economy will regain momentum and grow by 5.1 per cent in 2027.
However, the government has warned that a sustained rise in international oil prices could increase transport and production costs, push inflation higher, put pressure on the Kenyan shilling and increase the country’s import bill.