Monday, June 19, 2006

Hidden Tax (Fuel) Increase

One of the bold declarations by Finance Minister Amos Kimunya in his maiden budget speech was a proposal do away with road licenses, and the tax from these would now be recovered by an immediate 3 shilling increase in the price of fuel.

The move was probably targeted at rural areas where cars and farm vehicles without licenses or insurance are driven on remote roads and the only way the government can tax them is though taxing their fuel.

But in urban areas it is a different story where price of fuel has already jumped by between 3 and 4 shillings at the pump e.g. from 76 to 80 shillings per litre. My scenario: Earlier this year I paid for my car road license, which cost 2,500 and it, is unlikely that we motorists will be refunded. My fuel bill last month was 5,020 shillings ($70). The new increase of 4 shillings a litre translates to about a 5% increase and my fuel bill will rise to about 5,284. Over the next 12 months, I will pay 3,420 more – which is 1,000 shillings (36%) more than the license fee I paid in January.

Also I drive a popular small engine 1,600 cc car and my daily commute to work is a very low 3 kilometres that takes about of 15 minutes. For other transporters and commuters the cost will be much greater and we have been told severally that oil price increase in the Middle East translate into higher local fuel & transport costs and inflation across all sectors. Now the government has straight up added 5% to the petrol and diesel cost from which it already extracts a healthy percentage.

The proposal should be rescinded because it will not stimulate growth in the economy. I don’t expect the proposal to be sustained because the police, KRA, and insurance companies are likely to complain about the new directive. By looking at the documentation required to renew a license, it is likely that some motorists will stop paying insurance, while others will find it easier to evade taxes on cars in Mombasa or in transit through Kenya. Also the police (who are sometime a nuisance) will have no reason to inspect suspicious (non-Artur) vehicles on the road - which may ultimately result in higher crime.


Dave said...

Hmm, police have no reason to inspect a car? Of course they do, the insurance still has to be displayed. However, removing the road license does reduce their avenues for bribes and removes the need for me to go downtown once a year to get the license. Less paperwork and less government is generally a good thing.

The Rant said...

This may hopefully, force Kenyans to look at other means to commute and sources of energy.There is a need to improve public commute system, so folks don't have to rely on their private vehicles and hopefuuly reduce the congestion madness and pollution in the city.

Alternatively, hybrid cars are looking attractive right now, although, I highly doubt with a country full of poseurs whether going for small CC cars is an option.

$70.00 bucks aint that bad! Anyways, all is relative.

Hey! Bankelele, why not try cycling to work?

Prousette said...

I was wondering about those that have already renewed their road licences for the year do they get a discount on the increase? (they should to cover the kes3.20 per litre)
Reducing the rates by 50 per cent may have had some effect then the fuel goes up by kes1,60, no idea if that is feasible.

bankelele said...

Dave: Getting a road license, once a year, however bureaucratic the process, is still better than paying a higher tax for no reason.

The Rant: Many Kenyans walk to work because they can't afford to take numerous bus trips to get to work. But, riding a bicycle is extremely dangerous as there are no designated cycle paths in the city (yet)

Prousette: no plans for a refund and don't expect one.

Acolyte said...

Hey there!It's been a long time since I was here.I see the common mwanainchi is hamorraghing money until it isn't funny at all!
I wonder how long it will take for petrol to hit the 100/= mark!Pole sana!

chumviKiasi said...

This is the wrong move for a country struggling to maintain economic growth. We cannot afford to increase the cost of transporting goods and providing services more than it already is.
On the other hand, I realise why this sort of move may be necessary given these license dodgers, but all it will do is enrich the government at the expense of the consumer.Where does that money go? Better roads? Maybe we will see the benefits in time in our road network. That is how it works in the US, the 18.3 cents gas tax keeps the roads maintained of course the gas goes for 1/4 of the cost in Kenya. If so, I am all for this.

matu said...

No one likes to pay taxes, but is the system so inefficient that it needs a face lift? I don't know whether Kimunya's budget proposal will close the loopholes for those evading taxes, but this sounds more like the government subsidizing for inept administrations like the police. I wonder if this proposal mentions downsizing the police force?

If Kimunya's goal is to prevent tax evaders, he should look into overhauling the current system in such a way that it is more equitable for all. And not just giving a bandage solution.

Kagz said...

I think the road license payments should be outsourced to KRA since they have become very efficient in outperforming their yearly targets.

This price increases will trickle down to public transport price increase AGAIN and this is a pity coz Michuki's Mishipi's made many Kenyans result to walking to work coz many matatus/buses doubled their fares.

As banks said, fuel price increases affect ALL industries and prices on food stuffs are bound to increase.

kipepeo said...

You my dear have just been tagged....mwahhahaahaaa (evil laughter!!)

Dave said...


You are right, tax for no reason is not good. However, how is my road license tax that I have to take a day off work for any different than the fuel tax in terms of “no reason?” Both are sources of revenue for the government. Once you accept the need for taxation, you need to consider the costs of collecting and paying it.

If the total collected was the same in both cases, the fuel tax is better because it has less opportunity cost to the taxpayer and less need for costly government employees to administer it. If I have to take a day off to pay the tax (in addition to all the other taxes I already pay, including fuel tax) and the government has to pay someone to sit in an office and collect it, what is the cost? In the case of you and I, what is the cost of taking a day off work? If you are making over 60,000 a month, a day off costs you at least 3,000/-, assuming a 20 day work month. Throw in the cost of the official, the office, the extra petrol I burn, my parking ticket and photocopies.

Compare this to adjusting the rate of an already collected fuel tax. The fuel tax is cheaper for everyone and, again assuming the same amount of revenue collection, is a better tax.

Now, as we both know, the tax collected is a lot higher on the fuel and we both agree that it is going to be felt across the economy. I suspect we both wonder how well that money will be spent by the government and how much will actually go to maintaining roads. It is likely that we agree on the economic and political reasons for questioning this tax. I think it is the form of taxation that we differ on.

While I am writing, let me also complement you on the blog and the information you provide. I keep feeding job opportunities to my cousin who does not have internet access, it is much appreciated.

Kibet said...

Kimunya was trying to increase the resources available for Kenya's development agenda without relying on donor funding and that would probably explain why the drastic measure.

However, the pain that we drivers will have to bear and subsequently every kenyan who utilises any factory manufactured goods or ingredients will have a serious problem adjusting.

Banks, why do you think the proposal won't go through?

Ken said...

I think it's a great law although we should adopt a wait and see attitude. Lets see how the govt does with repairing the roads.
The govt has gotten over the headache of one corrupt office and depending on how high the collection is we could hope for a reduction in this tax.
It wont be unfair, if we see improved condition of the roads and better traffic management as drivers enjoy longer lasting cars and the high depreciation, the vehicle downtime and accidents caused by potholes and bad roads could be no more.

bankelele said...

Acolyte: If fuel hits a hundred, politicans will notice.

matu & chumviKiasi: Yes everyone shouldl have a license - but the number of evaders is miniscule compared to the tens of thousands of honest innocent car owners who are being penalized. Hopefuly the proposed new by the roads ministry will give a detailed account of how funds are spent

Matu: we ned more policemen, but they should fight crime - not spend the whole day at roadblocks collecting bribes or doing traffic.

Kagz: KRA has outsourced VAT and other tax collections to some banks, but road licenses may be too sensitive. Agree the number of people who walk to work (rather than pay 20/= per each matatu trip) is shocking - buses should be allowed to have standing passengers again.

kipepeo; let me see ...

Dave: I'd like to see where the road levy we have been paying for years went before i coulgh up more cash.

Kibet: proposal means more Artur's on the road & more junks without insurance

Ken: the transport sector is still a mess. And we motorists have such bad habits and are not helping matters with our poor driving.

ip said...

on taxation - i think the taxation decisions and budget decisions should be separated i find it crazy that every year ppeople have to hold there breaths to fiind out what new tax will be introduced. i think its really unfair because to individuals for example an investment you made a few days ago can suddenly become unprofitable just because of tax changes and it also makes business very unpredictable.

but on the fuel tax dont you think ksh3.50 when added to a general for example a bus carrying 40 people is still not significant or a truck carrying a ton of product that doesnt shouldnt trigger price raises
except in the case of greed. in which case we need still more competition

Kagz said...

@ IP

Unfortunately, bus/matatu owners never think that way. Even a Ksh 1 price increase can trigger a fare increase for all 40 or 16 passengers. Its called "striking while the iron is still hot." coz when competition checks in prices go back down.

Dyou know many matatu conductors never pass the fare price increases to the owners. Its an inside deal.

PS : Change the settings on your blog to block spam comments


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