This budget may not belong to the common man after all

Two days before Treasury Cabinet secretary Henry Rotich’s presented the Sh2.3 trillion budget, he made a glowing promise of a “pro-production, pro-poor budget”. 

This was music to the ears of most Kenyans whose fight against poverty is a daily, ceaseless struggle. Now the budget has been read and the million dollar question dollar is: Did the CS live to his promise?

Let’s dissect the numbers to get the right picture. The CS proposed a re-introduction in excise duty on kerosene, a fuel that is used by many poor Kenyans.

GT Kenya Director Samuel Mwaura has criticised the move to re-introduce saying it will hit the ‘Wanjiku’ hard and most likely fail to meet its intended objective to discourage adulteration.

Mr Rotich also proposed a reduction on import duty on energy efficient stoves from 25 per cent to 10 per cent to encourage the use of clean energy. Analysts have poked holes on the connection these stoves are linked to the poor and how this together with the removal of VAT on the liquefied petroleum gas will help the citizens at the bottom of the pyramid.

In 2013, a joint survey conducted by the Kenya National Bureau of Statistics (KNBS) and Society for International Development (SID) found that a total 65 per cent of households in the country use firewood, referred to as a primitive fuel, as the main source of cooking fuel, followed by transitional fuels like charcoal and least represented source being  advanced fuels like LPG (at just 5 per cent).

The study found out disparities in the relationship between urban residents and their rural counterparts regarding their sources of fuel with the use of advanced fuels being 16 times more, and the use of transitional fuels even times more, in urban areas than in rural areas. The use of primitive fuels was four times more in rural areas than in urban areas.

Huge population depending on firewood

The World Bank says that majority of Kenya’s poor live in the rural areas with 90 per cent of Kenyans in the bottom 40 per cent of income distribution living in the rural areas.

Mr Rotich’s energy goodies regarding the LPG will most likely then leave out the poor in rural whose names he had invoked in the promise. The huge population depending on firewood will most likely begin using charcoal before graduating to afford the cheaper LPG and this will depend on their improved incomes over time.

The CS had rightly argued that the use of wood and charcoal by many Kenyans exposes them to premature deaths as well as denying them access to clean, safe and efficient household energy.  However is proposal on how to address the situation is unlikely to succeed given the metrics cited above.

In the KNBS and SID report, it was found that over 68 per cent of Kenyans use kerosene for lighting, with 38 per cent of them using tin lamps. Only three counties — Nairobi, Mombasa and Kiambu — have 50 per cent use of electricity, with usage in other counties being below the 50 per cent mark.

“Mr. Speaker, the removal of excise duty on kerosene in 2011 was intended to cushion low income earners against high prices of this petroleum product. However, the removal of the tax has since resulted in increased adulteration of fuel in the country,” Mr Rotich said.

“This has denied the oil marketers business in the neighbouring countries in addition to giving them a bad reputation. In addition, adulteration negatively impacts car engines and increases their maintenance costs. In order to discourage this harmful practice, I propose to introduce excise duty on kerosene at KSh 7,205 per 1000 litres.”

Consumer Federation of Kenya Secretary General Stephen Mutoro said the motive behind the re-introduction of the excise duty was “misdirected” with those hit suffering innocently.

He said the government institutions tasked to monitor such malpractices ought to have been strengthened to curb the bad practice rather than punish poor consumers.

“The ordinary Kenyan is already feeling severe pinch from the high consumer prices whose net effect will be a shrinking spending power. To claim, for instance, that higher taxes on the pro-poor and mass market product like kerosene would lower fuel adulteration is openly deceptive if not plain misleading,” Mr Mutoro said.

“Truth is that government regulators, in this case the Energy Regulatory Commission, have the mandate and budget to address such challenges. To punish the consumer for sins of omission and/ or commission of a regulatory agency is not persuasive.”

The CoFEK boss also wondered why the -government had chosen to hit consumers hard through the road maintenance levy while the roads board was yet to account for the previous allocations meant to keep roads in good shape.

In the Budget, Treasury added Sh6 on the current Sh12 road maintenance levy on each litre of petrol. This means the road agency will be collecting close to Sh54 billion every year effectively bridging its yawning financing gulf which had accumulated to Sh200 billion.

Audit and Tax advisory firm Grant Thorton in its analysis said Treasury made a good attempt at sourcing for funds from fuel especially from petrol and diesel.

GT Kenya’s Mwaura said the government knew Kenyans would still drive cars despite the increase.

However, the increase in the road levy will push up the cost of transport hurting production that the minister had promised to promote. Transport is a key component of production cost.

Department of infrastructure had presented a proposal to take advantage of the falling fuel prices in the international market by freezing fuel prices at Sh90 and Sh85 per litre on the   petrol and diesel respectively and using any extras to maintain roads.

The scheme exclusively seen by Smart Company proposes to tap the extra shillings from price falls   for construction of new roads and maintenance of existing ones.

“If the determined retail price (by ERC) falls below this threshold, then the consumers would pay an additional levy on petroleum fuels to make up the difference. As world oil prices fall, the levy would rise.

Conversely, as the world oil prices rise, the levy would fall. When world oil prices rise above the floor, the levy would be zero,” read the proposal addressed to National Treasury Principal secretary Kamau Thuge and copied to Kenya Roads Board Executive director Jacob Ruwa.

Kenya Roads Board General Manager Rashid Mohamed said the new maintenance levy is a good step towards government sharing or spoils from low petroleum price.