East African Business Week (Kampala)
Cedric Lumiti
9 November 2008
Nairobi — Kenya's government has announced significant reductions in Value Added Tax (VAT) on oil in efforts to reduce energy costs in the country.
Most of the VAT categories were reduced by 4%, (from 16 to 12%) in a move that will drastically reduce energy costs for both domestic and industrial consumers.
Subsequently, the acting finance minister, Mr. John Michuki said this will result in reduction of the overall cost of electricity to consumers by 35%. He said he also expected the reductions to cover the cost of goods for consumers especially processed food and transport fees.
"I have under the powers conferred on the Minister of Finance in VAT Act, section 7 implemented a reduction on VAT on energy and other industrial oils with effect from today," Michuki told a news conference at his Treasury building boardroom yesterday.
And with this announcement, the government removed VAT from; all the oil supply points, production areas and all power consumption bills.
The minister told reporters that he was implementing the tax measures after in-depth consultations with his Energy counterpart, Kiraitu Murungi who is expected to come up with a complete outline of the measures under the powers conferred to him next week.
"I am announcing these measures after thorough consultations with the Energy Minister. And, under his mandate as energy minister with the powers conferred on him, next week Kiraitu is going to officially outline the tax measures comprehensively," added Michuki.
In particular; the minister reduced VAT rate on electricity energy from 16 to 12% similar with Industrial Fuel Oil (IDO), Heavy Fuel Oil and all residual fuel oils used by industries.
The ministers were instructed by President Mwai Kibaki three weeks ago to formulate methods of reducing taxes on power and ease the burden of high bills on electricity and consumable goods on wananchi.
He explained that the reduction on tax regime measures were in line with a comprehensive government outline of her path to growth posterity benefits and did not wish to see them disrupted.
The minister thus made it clear that he did not expect anybody to oppose the measures since the government had zero-rated VAT on all taxes to spread benefits across the board.
"Price on oil any producer is using has now been reduced by 35%, thus he is set to benefit because electricity bills will also go down by 35%. Thus, I do not expect anybody to oppose this directive since as a government
VAT payable by electricity consumers in the country is charged at three levels, namely; the generation level, supply by KenGen and sales level by Kenya Power and Lighting Company (KPLC).
In view of this; and coming at a time when electricity consumers were paying escalated power bills through the nose, the minister said these measures will promote business competitiveness and reduce the burden on households.
These measures are contained in the Legal Notice No. 135 of the Kenya Gazette Supplement No. 75 dubbed: The Value Added Tax (Amendment of the first Schedule) Order, 2008.
"This order may be cited as the VAT Amendment of the First Schedule Order, 2008, and shall come into operation on the 31st October, 2008 (Yesterday)," said Michuki in the Kenya Gazette Notice.
The move by Michuki means that electricity consumers will pay for their power bills in categories according to their consumption.
Domestic consumers of between 201 and 1,500 units will save about Ksh1,000 per month, those consuming power of above 1,500 units will save up to Ksh4,300 per month, medium industries or enterprises will save about Ksh120,000 per month, while; large industries or enterprises will save about Ksh4.8 million per month of power bills.
"We have zero-rated VAT on all oil products, its supply and use," said Michuki.
Kiraitu is specifically expected to outline the government's intentions to reduce its reliance on the expensive fuel generated electricity.
And in this regard, Michuki said the government is committed to shift its power generation strategy from thermal power sources to alternative renewable, such as hydro-power, geothermal, wind and solar.
Michuki said the government was responding to its people's cry and was committed to come to their help.
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