The Petroleum Outlets Association of Kenya (POAK) Wednesday, May 31, raised the alarm over the low fuel uptake by motorists in the country.
In a brief statement, the Martin Chomba-led association claimed that the uptake of fuel products had significantly reduced by 25 to 30 per cent.
Low fuel consumption would hurt petrol station businesses and lead to an economic shink due to low revenue collection by the government, according to Chomba.
"This is how you know Kenyans lack money in their pockets. Petroleum retail is currently down by 25 to 30 per cent. This is interesting because even the sale of diesel is down," the Petroleum Outlets Association of Kenya stated.
POAK attributed the low fuel consumption to several factors, including the high fuel cost, the rising cost of living, and the ongoing economic uncertainty in the country.
It warned that the high fuel cost makes it difficult for motorists to fill up their tanks, while the rising cost of living forces them to cut back on non-essential expenses. The ongoing socio-political uncertainty is also making people reluctant to spend money.
"It means goods are not being transported across the country. This tells the state of the economy," the Petroleum Outlets Association of Kenya stated.
While calling on a review of the taxes, believed to prompt motorists to avoid purchasing fuel products, POAK observed that low fuel consumption negatively impacted petrol station businesses that risk closure.
In the proposed Finance Bill 2023, the government proposed increasing Value Added Tax (VAT) on fuel from 8 to 16 per cent.
In September 2022, President William Ruto also removed subsidies on petroleum products after it became apparent that the scheme benefited a few businessmen at the nation's expense.
Speaking to Kenyans.co.ke, Economist Professor X.N. Iraki weighed in on the matter, stating that the government needs to take urgent steps to address the low fuel consumption and create an environment conducive to economic growth.
Professor Iraki cautioned that low fuel consumption could devastate the Kenyan economy if the government does not take action.
"Over-taxation of fuel products can have several negative impacts, including, increased cost of living. When the fuel price increases, it costs more to transport goods and services, leading to higher consumer prices.
"The single and most immediate result of the high fuel cost is high inflation. This is because fuel is a major input cost for many businesses, and when the price goes up, it costs more for businesses to produce goods and services. This can lead to higher consumer prices, which can contribute to inflation.
Professor Iraki noted that the country will soon experience decreased economic activity since businesses may be less likely to invest or expand if their costs rise.
The Economics Professor also pointed out that high fuel costs could lead to increased poverty as low-income households are more likely to spend a larger proportion of their income on fuel.
"When the fuel price goes up, it can make it more difficult for low-income households to make ends meet, leading to increased poverty.
"Instead of driving to work, car owners choose to walk or take a matatu to work, and as a result, the government will fail to collect the desired revenues. Even tax collected should be guided by these factors in mind," Professor Iraki stated.
Professor Iraki's sentiments were supported by Economist Churchill Oguttu, who stated that a 25 to 30 per cent reduction in consumption was almost unlikely and would seriously impact the national economy.
The economist noted that, even though the cost of paraffin was particularly increased by around 20 per cent, the Petroleum Outlets Association of Kenya's claims needed further empirical analysis.
He, however, explained that Kenya's economy would significantly shrink since the government depends on the tax revenue from fuel to address several infrastructural needs.
"Agreeably, it means that the government will not get the much-needed finances which are very necessary for the development of the country," Churchill stated.
Churchill also noted that over-taxation of fuel products could lead to inequitable economic gains, as it can disproportionately impact those who rely on cars for transportation.
It is important to note that the negative impacts of over-taxation of fuel products can vary depending on the specific circumstances. Still, potentially, people will resort to smuggling fuel into the country to evade taxes.
The experts warned that this could lead to a loss of tax revenue for the government and increase the risk of accidents and environmental damage.
It was observed that people who cannot afford to pay high fuel prices may turn to the black market to buy it at a lower price.
Black markets are often unregulated, and poorly distilled fuels are sold there which sometimes contain impurities that can damage vehicles.
The prices of petroleum products in May 2023 were affected by several factors, including the ongoing war in Ukraine, the global economic slowdown, and the rise in inflation. As a result, prices for gasoline, diesel, and other petroleum products rose significantly in May.
Energy and Petroleum Regulatory Authority (EPRA), on May 10, 2023, increased petrol, diesel and kerosene prices by Ksh3.40, Ksh6.40 shillings and Ksh15.19 per litre. The new prices took effect on May 15, 2023.
Following the new changes, Petrol, Diesel and Kerosene trades at Kshs. 177.10, Kshs. 143.50 and Ksh Ksh118.19 per litre.