31 October 2008
editorial
It sounds strange that the price of crude oil stood at $27 a barrel in 2000.
But what is more baffling is that the Government continued taxing industrial oils even as the benchmark price touched a $137 high four months ago.
In revenue terms, the rise in oil prices triggered by heavy speculation by futures traders and the Bush-era warmongering, has been a godsend. By levying a 16 per cent VAT, Kenya Revenue Authority has raked in even more as oil prices soared.
But power producers using oil -- increasingly due to drought that reduces hydro-generation -- have passed on the cost to inflation-weary consumers.
Manufacturers, including cement firms using oil fuel, have had to increase prices or shut down.
It may be borne in mind that Kenya's competitors such as Egypt subsidise oil to the extent that the price is only a sixth of what Kenyans pay for it.
It need not take years of lobbying by manufacturers and consumers for the Government to see sense in reducing the VAT.
Indeed, despite acting Finance minister John Michuki's claim that the reduction on the four categories of commercial oils will lead to a 35 per cent drop in electricity costs, the incremental nature suggests otherwise.
By just cutting the VAT rate from 16 per cent to 12 per cent, this appears highly improbable.
Nevertheless, it is a good start and a timely realisation that production should not be saddled with taxation.
A better option would be target consumption.
In the long run, the Government should realise that it has not resolved the energy crisis as there is no guarantee that the prices will be constant.
This means that it has to actively explore alternatives such as bio-diesel as well as wind, geothermal, solar and hydro power to cushion consumers and the economy.
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