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Kenya MP panel backs halving of fuel tax after angry protests
A fuel pump attendant points at fuel pump during the beginning of an indefinite strike at a petrol station in downtown Nairobi, Kenya, September 3, 2018. PHOTO BY REUTERS/Njeri Mwangi
By Duncan Miriri
20/09/2018
NAIROBI (Reuters) - A group of Kenyan lawmakers on Thursday backed a plan by President Uhuru Kenyatta to halve a new value added tax on petroleum products, easing pressure on his government from outraged Kenyans struggling with a squeeze on living standards.
The government has faced a fuel dealers' strike, anger among commuters and a lawsuit after transport and fuel prices jumped when the 16 percent value-added tax on all petroleum products entered into force on Sept. 1.
The vote by parliament's finance committee signals a likely win for the government of East Africa's richest economy when the plan for an eight per cent tax goes to a full vote in the house later in the day. Kenyatta's Jubilee Party enjoys a comfortable majority in the assembly.
"They have agreed with the president," house majority leader Aden Duale told Reuters during the debate on Thursday.
The tax is part of a government bid to finance key priorities prudently while narrowing a fiscal deficit that the Treasury forecasts at 5.9 percent of economic output this year.
Like other frontier economies, Kenya has found it tough to secure external funding as emerging markets from Turkey to Argentina are buffeted by turbulence and tumbling currencies.
Kenya's challenge was compounded by last week's expiry of an International Monetary Fund stand-by loan arrangement for balance of payments support. [L5N1W01PS]
The fiscal deficit reduction targets were set by the IMF when it granted a precautionary credit deal two years ago that expired this month.
Legislators must approve the new value added tax proposal before Kenyatta can sign this financial year's budget into law.
INVESTOR CONFIDENCE
Foreign investors are watching the events keenly.
"Kenya should be a country of concern for investors at the moment," Charles Robertson, chief economist at Renaissance Capital, told a conference in Nairobi on Wednesday.
He cited the challenging external financing environment for frontier African economies and the risk that the shilling currency could weaken steeply in the near term.
The finance committee said in its report on the president's proposals that the VAT measure is consistent with the government's aim to avoid a huge funding gap in the budget.
The finance ministry had budgeted for 35 billion shillings ($347.74 million), which it expected to collect through the tax in the financial year to the end of next June, the committee said, adding the halved rate will allow the Treasury to collect 17.5 billion shillings.
"The intent of this amendment is to ensure that the exemptions in the VAT Act are reduced since this is the best practice," the committee said.
Some lawmakers voiced their support for the report when debate started.
"For investors to have confidence in this economy, we must as a country show that we have fiscal discipline," said Kimani Ichung'wah, a ruling party MP.
Kenyatta said last week that further delaying the tax, which was passed into law in 2013 but never implemented, would compromise the government's ability to fund planned social welfare and development programmes.
The finance committee also supported Kenyatta's proposal to increase taxes on some financial services.
(Additional reporting George Obulutsa and Humphrey Malalo, Editing by Maggie Fick, William Maclean)
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