The IMF has advised the Kenyan Treasury to impose a 16 per cent VAT on fuels from the current 8 per cent when crude oil prices fall.
The IMF’s push for the fuel tax was revealed in an advisory to the government after the fund’s board approved a new loan for Kenya valued at $2.34 billion to help the country continue responding to the Covid-19 pandemic and address its debt vulnerabilities.
Earlier last month, Super Petrol prices rose by Kes 7.63 to retail at Kes 122.81 per litre; subsequently, a litre of Diesel rose to retail at Kes 107.66 while Kerosene rose to retail at Kes 97.85.
The current prices in Petrol are retailing at a level last seen in November 2011, while diesel is selling at the highest level since December 2018.
The introduction of the standard 16 per cent VAT on fuels is part of the multilateral financier attempts to raise state revenue which has been pushed back several times previously.
In 2018, the government had implemented a 16% VAT on fuel products; however, following the protest it received from the motorist and businesses, it was forced to cut the taxes to 8%.
IMF Loan Programme to Kenya
Recently, the IMF has been receiving protest from Kenyans following the approval of the US$2.34 Billion loans for Kenya. The three-year financing package is intended to support the next phase of the governments’ COVID-19 response and their plan to reduce debt vulnerabilities while safeguarding resources to protect vulnerable groups.
The Fund-supported program will also advance the broader reform and governance agenda, including addressing weaknesses in some state-owned enterprises (SOEs) and strengthening transparency and accountability through the anti-corruption framework.
However, in response to the protest, the IMF warned Kenyans that short of their loans to the government, they face job cuts, tax increases and expensive loans without their assistance.
Previously Kenya had kept away from direct budget funding from institutions like the IMF and the World Bank during former President Mwai Kibaki’s regime, with most of the support coming in the form of project support.
Now, the country’s deteriorating cash flow situation marked by falling revenues and worsening debt service obligations has forced the country to return to these loans, which have conditions attached to them.
Last year, Kenya borrowed Kes79.3 billion from the IMF and has now taken Kes 257 billion under the current programme.
From the World Bank, Kenya took $750 million (Kes 75 billion) in 2019, and last year took a $50 million (Kes 5.3 billion) Covid-19 emergency funding, a $43 million (Kes 4.5 billion) loan for battling locusts, and $1 billion (Kes 106 billion) budget support facility to help manage adverse effects of the Pandemic.
Additionally, the treasury has announced plans to raise its debt ceiling above Kes 9 trillion, even as Kenyans went online to protest the government’s insatiable appetite for loans.