Kalonzo says Sh10 fuel price reduction insufficient, calls for major tax cuts

The recent KSh 10 reduction in diesel prices by Kenya's Energy and Petroleum Regulatory Authority (EPRA) has been met with criticism from political leaders, including Wiper leader Kalonzo Musyoka, who argues it is insufficient to alleviate the high cost of living. This article examines the intricate legal and regulatory framework governing fuel pricing in Kenya, highlighting the various taxes and levies that constitute a significant portion of the pump price. It delves into the statutory basis for these charges, including the Excise Duty Act, the Value Added Tax Act, the Road Maintenance Levy Fund Act, and the Petroleum Development Fund Act, and discusses the mechanisms through which prices are determined and adjusted. The analysis explores the implications of such incremental price adjustments versus the calls for substantial tax cuts, considering the government's fiscal needs against public economic relief.

Kenya's Energy and Petroleum Regulatory Authority (EPRA) recently announced a marginal reduction in fuel prices, including a KSh 10 decrease for diesel. This adjustment, however, has been swiftly dismissed by political figures like Wiper leader Kalonzo Musyoka, who argues that it falls far short of providing meaningful relief to citizens grappling with a high cost of living. Musyoka has publicly called for more substantial tax cuts to bring fuel prices below KSh 200 per litre, highlighting the significant impact of government levies on the final pump price.

This article aims to dissect the legal and regulatory architecture underpinning fuel pricing in Kenya, examining the various statutory instruments and levies that contribute to the cost at the pump. It will explore the powers vested in EPRA and the Cabinet Secretary for National Treasury to determine and adjust these prices and taxes. By analyzing the current framework and recent interventions, this article will shed light on the complexities involved in balancing fiscal policy with public demand for affordable energy, and the legal pathways available for implementing the significant tax reductions advocated by political leaders.

The pricing of petroleum products in Kenya is a highly regulated affair, primarily governed by the Petroleum Act, 2019, and the subsidiary Petroleum Pricing Regulations, 2022. Under this framework, the Energy and Petroleum Regulatory Authority (EPRA) is mandated to compute and publish maximum wholesale and retail prices for super petrol, diesel, and kerosene on a monthly basis. The formula employed by EPRA is comprehensive, taking into account a multitude of factors including the landed cost of imported petroleum products, international crude oil prices, exchange rate fluctuations, freight and insurance charges, and various local taxes and levies.

A substantial portion of the final pump price is attributable to a complex array of taxes and levies imposed by the government. These include, but are not limited to, Excise Duty, Value Added Tax (VAT), the Road Maintenance Levy, the Petroleum Development Levy, the Anti-Adulteration Levy, the Petroleum Regulatory Levy, the Merchant Shipping Levy, the Import Declaration Fee, and the Railway Development Levy. Each of these charges is underpinned by specific legislation, such as the Excise Duty Act, 2015, the Value Added Tax Act, 2013, the Road Maintenance Levy Fund Act, 1993, and the Petroleum Development Fund Act, 1991. The cumulative effect of these statutory charges often means that taxes and levies account for a significant percentage, sometimes close to half, of the retail fuel price.

The recent KSh 10 reduction in diesel prices, alongside a KSh 0.22 reduction for petrol, was announced by EPRA for the period between June 15 and July 14, 2026. This adjustment was made in accordance with Section 101(y) of the Petroleum Act, 2019, and Legal Notice No. 192 of 2022. Notably, the government utilized approximately KSh 10 billion from the Petroleum Development Levy (PDL) Fund to cushion consumers, demonstrating the fund's role in price stabilization as provided for under the Petroleum Development Fund Act, 1991.

However, the efficacy of such incremental adjustments is a point of contention. Kalonzo Musyoka's call for "major tax reductions" to bring prices below KSh 200 per litre, and ideally to KSh 170 per litre, underscores the public's perception that current prices remain prohibitively high. Achieving such a significant reduction would necessitate legislative amendments to the various tax statutes. For instance, reducing the Excise Duty, which is a fixed charge per litre, would require parliamentary action under the Excise Duty Act, 2015. Similarly, altering the Road Maintenance Levy, currently KSh 25 per litre, would involve amending the Road Maintenance Levy Fund Act, 1993.

The Value Added Tax (VAT) on petroleum products, currently at 8% following a temporary reduction via Legal Notice No. 70 of 2026, presents a unique challenge. While the Cabinet Secretary for National Treasury has the power to vary the VAT rate through gazette notice under Section 6(1) of the Value Added Tax Act, 2013, the "tax-on-tax" effect, where VAT is applied to the base cost plus other levies, significantly inflates the final price. A fundamental restructuring of how VAT is applied, or a more substantial reduction, would be required to achieve the desired price levels. The Anti-Adulteration Levy of KSh 18 per litre on kerosene, introduced through the Finance Act, 2018, also illustrates how specific policy objectives (curbing adulteration) can lead to higher prices for certain products.

The tension lies between the government's revenue generation needs, which rely heavily on fuel taxes, and the public's demand for affordability. While the PDL Fund offers a mechanism for short-term price stabilization, its capacity is finite, as evidenced by the KSh 10 billion drawn for the current cycle. Sustainable, significant price reductions would require a re-evaluation of the entire fuel taxation structure, potentially impacting other government programs funded by these levies, such as road infrastructure development. Comparative analysis with regional peers reveals that Kenya's tax burden on fuel is higher, partly due to differing VAT policies and the layering of multiple levies.

The debate surrounding fuel prices in Kenya underscores a critical intersection of legal, economic, and political considerations. While EPRA operates within a clearly defined statutory framework to determine monthly fuel prices, the cumulative effect of various taxes and levies, enshrined in Acts such as the Excise Duty Act, 2015, the Value Added Tax Act, 2013, and the Road Maintenance Levy Fund Act, 1993, significantly contributes to the high cost of fuel. The recent KSh 10 reduction in diesel prices, while a welcome step, is perceived by many, including political leaders, as insufficient to address the broader economic burden on Kenyans.

For practitioners, understanding the multi-layered taxation structure and the specific legislative instruments governing each levy is crucial for advising clients in the energy sector or those impacted by fuel costs. Any significant reduction in fuel prices, as advocated by Kalonzo Musyoka, would necessitate legislative amendments, likely through the annual Finance Act or specific Legal Notices from the Cabinet Secretary for National Treasury, rather than mere regulatory adjustments by EPRA. The ongoing reliance on the Petroleum Development Levy Fund for price stabilization highlights a temporary measure, and a long-term solution would require a comprehensive review of fiscal policy to balance revenue generation with economic relief for citizens. The legal landscape of fuel pricing in Kenya remains dynamic, influenced by global oil markets, exchange rates, and domestic policy choices, all underpinned by a robust, albeit complex, regulatory framework.