Petroleum products dealers in the country have warned of significant impact on businesses if the Finance Bill 2024 is passed in its current state.
Their major concern includes the Motor Vehicle Tax, an annual tax that will be paid during motor vehicle insurance coverage acquisition where the levy is proposed at 2.5 per cent of the vehicle's value, with a minimum of Sh5,000.
According to the sector lobby–the Petroleum Outlets Association of Kenya (POAK) , all last mile delivery for both local and export is done using trucks.
These trucks vary in sizes and due to the sensitivity of the product, they must have comprehensive insurance where current premiums range between Sh400,000 and Sh1.2 million, depending on the size of the truck.
An additional 2.5 per cent tax hence means premiums will increase to the range of between Sh570,000 and Sh1.7 million, making it costly for investors in the sector.
“Since the margin offered for transport is determined by EPRA, how will transporters afford this tax?,” POAK chief executive and national coordinator, John Njogu, posed.
The association has also raised concerns over the Kenya Revenue Authority’s eTIMS (electronic Tax Invoice Management System) penalty, where it has been proposed that businesses that have not fully integrated with ETIMs be penalised at a rate of Sh2 million per month.
“This is inconsiderate and out of touch with reality. The petroleum sector was at the forefront of adopting ETIMs and as an association, we worked very hard to bring compliance within the sector. That notwithstanding, we have experienced immense user experience challenges with the system,’’ Njogu noted.
A more collaborative and non-punitive approach needs to be employed to support the taxpayer, he said in a statement on Wednesday.
The dealers have also raised concerns that withholding VAT on petroleum products will impact on cash flow, since Petroleum is a capital-intensive but low-maintenance business.
Withholding VAT at two per cent of taxable supplies means more than the profits of the business are tied up, according to the association, which hurts businesses, especially the business-to-business wholesalers.
The just-released Economic Survey 2024 by the Kenya National Bureau of Statistics demonstrates the depression that has been experienced in the petroleum sector in the last 24 months, largely due to an increase in prices.
In the reported period, importation dropped by 27.2 per cent while exported petroleum products were down 38 per cent.
The decrease in volumes has impacted the entire supply chain, according to dealers, even as margins remain low.
The allowable margins for Oil Marketing Companies, currently at Sh12.39 for a litre of petrol and Sh12.36 for diesel and kerosene, were also last reviewed in 2018, despite the costs of doing business having almost doubled.
The margins are set by the Energy and Petroleum Regulatory Authority in its pricing.