Fuel prices in the country are set to go higher if the government gives in to pressure from the International Monetary Fund (IMF).
The international lender has put treasury on a tight leach demanding they double on fuel VAT in order to cover for the budget deficit and tame the appetite for loans.
IMF reckons that Kenya should impose a 16 percent VAT on fuels from the current eight percent when crude oil prices fall.
The IMF’s push for the fuel tax was revealed in an advisory to the government after the fund’s board approved a new loan for Kenya valued at $2.34 billion to help the country continue responding to the Covid-19 pandemic and address its debt vulnerabilities.
The introduction of the standard 16 percent VAT on fuels, which has been pushed back several times previously, is part of latest attempts to raise State revenues.
President Uhuru Kenyatta was in 2018 forced to halve VAT on fuel to eight percent after the introduction of the full tax prompted protests from motorists and business lobbies.
The tax was originally included in a law passed in 2013, but was postponed several times, amid complaints about its impact.
Now, the IMF is asking Kenya to consider the fuel tax at a time when the multilateral lender is expected to play a role in shaping policy that would require the government to implement tough conditions across many sectors.
“If needed to meet fiscal objectives, capitalize on lower fuel prices by aligning fuel VAT to the standard rate,” the IMF told the government.
“Oversupply and volatility in the oil market would be a positive shock for Kenya, easing potential external balance pressures from other sources.”
The IMF advisories come on the back of its multi-billion shilling loan facilities to Kenya where money flows straight into the budget to top up the public purse.