Why it’s wrong time to slap 16pc VAT on petroleum products

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Why it’s wrong time to slap 16pc VAT on petroleum products


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LPG vendor. FILE PHOTO | NMG

Reports that one of the conditions for the recent International Monetary Fund (IMF) loan to Kenya is 16 percent value added tax (VAT) on all petroleum products are disconcerting.

The unwelcome news came on the second day of the global Liquefied Petroleum Gas (LPG) stakeholders annual gathering where discussions focused on, among others, how to sustain LPG penetration in Africa; eliminate preventable respiratory diseases and death particularly of women and children of five years and below; sustain afforestation efforts and reclaiming water towers; and create wealth, employment, entrepreneurship and technological innovative opportunities.

Policy makers would betray the citizenry if they changed the tax status on LPG to anything else other than the current zero-rate, at a time when we have ongoing flooding and drying up of the country’s lakes, which have largely been attributed to climate change, deforestation and siltation.

As at the beginning of January this year, approximately over 40,000 Kenyans had been displaced from their homes and over 6,000 jobs had been lost while the drying up of Lake Magadi has put at risk the livelihoods of 50,000 community members, 600 employees, extinction of unique fish and bird species, including flamingoes, and loss of approximately Sh9 billion annual contribution to Kenya’s economy from solid sodium carbonate mining.

Charcoal and firewood

The report of Kenya Household Cooking Sector Study, which was launched at the November 2019 Clean Cooking Forum, indicates that more than 50 Kenyans die daily from cooking with toxin-emitting fuels such as charcoal and firewood.

Specifically, that Kenyans who use such fuels die from preventable pneumonia, asthma, respiratory tract infections (not to mention eye diseases, lung cancer, chronic obstructive pulmonary disease, and pulmonary disorders).

Further evidence on the adverse impact on health due to use of cooking fuels that are derived from our forests is contained in the annually published Economic Survey data on Kenya’s burden of disease, with the most current indicating that 21,600 Kenyans die annually from respiratory diseases — 40 percent being young children and infants due to pneumonia. Suffice it to note that the primary cause of these respiratory morbidity and mortality is the exposure to indoor air pollution from cooking fuels such as wood and charcoal.

It has been repeatedly established and scientifically acknowledged that the continuous destruction of our forests due to the use of firewood and charcoal as the primary cooking fuel significantly contributes to climate change, subsequently disrupting our weather patterns thereby making them unreliable, adversely impacting on agricultural productivity and causing Kenya’s food insecurity.

Additionally, the runaway deforestation at a rate of 0.3 percent per year has interrupted an enabling ecosystem for Kenya’s five water towers to feed filtered rainwater to rivers and lakes for the provision of over 75 percent of the country’s renewable surface water sources.

As a minimum, the policy makers in the dockets that oversee taxation, energy, health, environment, manufacturing and enterprise are well aware of the one antidote that will not only address the said challenges but also provide an opportunity to sustain the positive socio-economic gains that have so far accrued from the current economic incentives and specifically the zero rate on LPG.

At the height of the 2020 recession and lockdown on account of Covid-19 Kenya experienced an increase in LPG consumption — a clear indicator that it is an important cooking fuel during this pandemic.

In addition, the pandemic highlighted that LPG supply chains that are powered by technology to facilitate purchase and delivery of gas requirements based on size of the wallet are an important innovation offering when household liquidity challenges are exacerbated by a recession.

It must be recognised that the Ministry of Petroleum and Mining has been at the forefront in implementing the government policy of replacing polluting, disease- and death-causing cooking fuels with cleaner ones like LPG, biogas and ethanol.

Action plan

Through public-private sector cooperation, the ministry and stakeholders have an LPG development action plan targeting a 100 percent conversion of consumers using firewood, charcoal and kerosene to LPG by 2028.

One of the key outputs of the action plan is the regulatory reforms that have been entrenched in the LPG laws that came into force in June 2019 and whose objective is to completely rein in the theft and illegal refilling of LPG cylinders, spur investments in LPG infrastructure and deploy sufficient safe cylinders in the market.

As to whether the regulator, who is funded by taxpayers, has fully implemented the reforms is a story for another day. Government direction on cross-cutting issues requires policy alignment for consistency, follow-through and progress.

The lack of cooperation in displacing charcoal and firewood with the readily available clean, safe, cheaper — yes, LPG is way cheaper than charcoal and firewood — alternative is making the attainment of 10 percent forest cover, food security, manufacturing (demand in LPG equals demand in locally manufactured cylinders), climate change action, gender equality, education, reclaiming of the five water towers and elimination of child mortality a mirage.

The Treasury must not drop the ball in upholding the economic incentive under the LPG development action plan. Keeping LPG affordable, available and accessible is central to the survival of particularly our children and the very existence of our planet.

Manyara is General Manager, Petroleum Institute of East Africa

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