I do not understand how the Energy Regulatory Commission (ERC) is doing its math.

IN SUMMARY

- One month down the road, there is another inconsistency: this time in the calculation of new prices of petrol after implementation of Value Added Tax.
- According to the notice of August 14 2018, the maximum price of unleaded premium in Nairobi was fixed at Sh113.70. After implementing the VAT rule on September 1, the price was changed to Sh127.80.

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I do not understand how the Energy Regulatory Commission (ERC) is doing its math. When announcing the new electricity tariffs, the ERC said the first 10kWh will be charged at Sh12 each and any consumption above this would cost Sh15.80 (up to a maximum of 1,500kWh).

But when the bills started arriving, the calculation was done differently: anyone who consumed above 10kWh was charged Sh15.80 for the entire consumption instead of for the units above the 10kWh limit. To date, ERC has not clarified this discrepancy.

One month down the road, there is another inconsistency: this time in the calculation of new prices of petrol after implementation of Value Added Tax.

According to the notice of August 14 2018, the maximum price of unleaded premium in Nairobi was fixed at Sh113.70. After implementing the VAT rule on September 1, the price was changed to Sh127.80.

Now the notice from the Kenya Revenue Authority (KRA) on this matter stated that “ … VAT is chargeable on all petroleum products at a rate of 16 per cent of transaction value”. The ordinary meaning of “transaction value” is the Sh113.70 that Nairobi motorists were paying before September 1. Thus, ERC should have simply added 16% to this and get Sh131.89. I asked ERC to explain how they arrived at Sh127.80 but they did not respond.

Nevertheless, I perused the breakdown of costs that ERC used in arriving at the new prices. The starting point for the calculation is the weighted average landed cost of the petroleum. In the notice of August 14, this was Sh59.05 per litre while on the one of September 1, it was Sh57.82.

I asked ERC to explain why the landed costs are different yet they are for the same importation period. Again, there was no reply! Instead, ERC issued a press statement on September 5 simply insisting that the calculations are correct.

Undeterred, I decided to work backwards and see if I can make some headway. The VAT amount indicated in the cost breakdown is Sh14.71. If this is 16 per cent, then what is 100 per cent? The answer is Sh14.71 divided by 16 per cent; that is Sh91.94.

Now the main cost items listed are: landed cost = Sh57.82; storage and distribution = Sh3.90 and importers’ and dealers’ margins = Sh10.89. Adding these together yields Sh72.61.

This is Sh19.33 less than the VAT taxable amount of Sh91.94. So, something is missing.

After the direct product costs (Sh72.61), there is a list of seven taxes and levies before the VAT amount. Ordinarily, levies do not attract VAT. That leaves the Excise Duty (Sh19.90 and the Import Declaration Fee (Sh1.09). These total up to Sh20.99. When we add Sh20.99 to Sh72.61, we get Sh93.6. This is Sh1.66 more than the calculated ex-VAT amount (Sh91.94). In short; the numbers don’t add up.

ERC needs to clarify two issues: first, why the landed cost used on September 1 is different from that of August 14 and, second, which cost items are included in the calculation of VAT.

**www.figures.co.ke; Twitter: @MungaiKihanya**

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