September 3, 2018 / 12:06 PM / 2 years ago

UPDATE 2-Kenyan fuel tax causes anger, petrol dealers strike

* Kenya slapped 16 pct fuel tax Saturday

* Trucks block Nairobi fuel depot in protest

* Lawmakers had voted against the tax

* Government seeks to cut fiscal deficit (Recasts with quotes, context)

By Duncan Miriri

NAIROBI, Sept 3 (Reuters) - Kenya’s government on Monday faced a strike, anger among commuters and a lawsuit after it triggered a hike in transport and fuel prices by imposing a 16 percent value added tax on all petroleum products.

Suppliers stopped transporting fuel from depots to gas stations due to the strike by the Kenya Independent Petroleum Dealers Association who demanded the tax be removed. Dozens of fuel trucks owned by members of the association blocked the main fuel depot in Nairobi’s industrial area.

The tax is part of a government bid to finance key priorities prudently while narrowing a fiscal deficit that could jeopardise a deal with the International Monetary Fund. The Treasury was not immediately available to comment on Monday.

“This is in solidarity with all the other Kenyans against the government’s decision. The strike is indefinite until the decision is reversed,” Joseph Karanja, the chairman of the association, told Reuters.

The association controls 55 percent of the retail market, while the rest is served by marketers such as Shell’s licensee Vivo Energy, KenolKobil and Total Kenya.

“I’m really against it. It’s uncalled for and something they should reconsider,” George Kariuki, an engineer in Nairobi said about the fuel tax. “Everything will be more expensive.”

Petrol prices rose by about 12 percent after the tax was introduced on Saturday.

The new tax, which is expected to generate billions of shillings in revenue, is meant to help cut the budget deficit to 5.7 of gross domestic product this fiscal year, from 7.2 percent in 2017/18.

Plans for a VAT on fuel had been postponed several times since 2013 and parliament voted last week to delay it for another two years.

President Uhuru Kenyatta is attending a meeting in China and is yet to sign the bill into law. But the revenue authority moved to introduce the tax at the weekend, citing an existing law that called for it to kick in on Sept 1.

Opposition lawmaker Junet Mohamed, who initiated the amendment to postpone the tax, said Kenyatta must suspend it.

“It (the tax) is unfortunate because this is one thing that affects people across the board. It basically affects the lives of the people. The president must look at it critically,” he told Reuters.

An activist on Monday sued the government, taking the new tax to the high court to seek to block it.

The government is under pressure to placate voters and secure from the IMF a fresh extension of a stand-by credit arrangement of $989.8 million.

The IMF’s resident representative in Kenya Jan Mikkelsen said they were still assessing the implications of parliament’s amendments to the law on the fund’s lending programme.

“They are stuck between a rock and a hard place,” Alex Muiruri, fixed income trader at Nairobi-based Kestrel Capital, said of the government, adding that their best option could be to reduce expenditure rather than slap taxes.

Meanwhile, drivers and passengers of Nairobi’s ubiquitous ‘matatu’ mini-buses complained about the tax hike.

“It’s difficult. Sometimes you have to come half way on foot to cover that expense,” passenger Wanjiku Mutenga said as she stepped off a bus in central Nairobi. (Additional reporting by Cecilie Kallestrup and Humphrey Malalo Editing by Ingrid Melander and Matthew Mpoke Bigg)

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