Kenyan households and businesses are keeping their fingers crossed after two citizens filed a petition in court seeking to stop implementation of an annual inflation adjustment levy of 4.97 percent, which would see a further increase in prices of fuel with effect from October 1.
The levy is set to increase the excise duty on at least 31 products, including fruit juices, bottled water, beer, tobacco and boda boda, making life even more difficult for the struggling taxpayers.
The worsening cost of living situation in the country has been compounded by rising crude oil prices and weakening shilling that fell to as low as Ksh110 against the dollar last week, leading to increased landed cost of petroleum products in the country.
“The net effect of all these will be a huge hit on the economy — high cost of production, surge in food prices, transport and overall, a higher cost of living,” said Consumer Federation of Kenya (Cofek) secretary general Stephen Mutoro in a statement.
“The FDIs as well as consumer purchasing power will be driven south for a struggling economy reeling under the Covid-19 pandemic.”
Last week, the Senate said the sharp increase in fuel prices in the country has had a ripple adverse effect on the economy leading to a rise in the cost of living and the cost of doing business on an already overburdened citizenry grappling with the effects of the pandemic.
“This increase in fuel prices has outraged majority of Kenyans who bear the brunt of the effects of the increase such as high cost of transportation, high food prices, high cost of electricity and other adverse effects on most sectors of the economy,” reads the Senate’s Order Paper for September 23, 2021.
The lawmakers also debated a censure motion against Cabinet Secretaries for Energy (Charles Keter) and Petroleum and Mining (John Munyes) for failing to appear before the House to explain the sharp increase in the cost of fuel in the country.
In June, parliament rejected petitions seeking to implement the inflation adjustment of excise duty every two or three years to cushion consumers and firms from rising product costs.
Soft drinks manufacturer Coca-Cola had petitioned lawmakers to have the review in tandem with the average annual inflation done every three years while beer maker East Africa Breweries Ltd unsuccessfully pushed to have the price reviews done every two years.
The indexation of specific rates of excise duty to adjust for the inflationary erosion of collected taxes was introduced through the Excise Act 2015
However, the manner in which the rates were to be adjusted has been reviewed and revised since the Act took effect in December 2015.
In 2017, the adjustment of the specific rates of excise duty was initially proposed to be made once every two years but the proposal was reversed in 2018 to provide for an amendment frequency of once every year, according to the consultancy firm Ernst & Young through its Tax Alert (2020).
However, two citizens —Isaiah Odando and Wilson Yata — last week petitioned the court to stop the decision by the taxman to increase excise duty on the products by 4.97 percent in line with average annual inflation arguing that this will put more pressure on the cost of living as manufacturers will pass on the additional cost to end users.
The Finance Act (2020) amended the provision in the Excise Duty Act relating to annual inflation adjustment by requiring the KRA’s Commissioner General to seek an approval from the Cabinet Secretary for the National Treasury and Planning to adjust the specific rates of duty.
Thereafter the adjustment notice is expected to be set before the National Assembly within seven days of publication and approved by the Assembly within 28 days.
August inflation rate increased to 6.57 percent from 6.55 percent in July caused by a sharp increase in the prices of food and cooking gas fuel, according to Kenya National Bureau of Statistics.
The government has been criticised for the increase in fuel prices through taxes with the cost per litre of fuel consisting close to 50 percent taxes.
“We have always talked about the difficulties of increasing the cost of doing business and that big jump in fuel prices will now cause a situation where everything else goes up,” said Mike Macharia, the chairman of Kenya Association of Hotelkeepers and Caterers.