The Petroleum Outlets Association of Kenya (POAK) has raised concerns over the proposed increase in Value-Added Tax (VAT) in the Finance Bill 2023, warning that it will have devastating effects on the petroleum industry.

POAK contends that the increased capital costs will significantly reduce their already thin margins, which could be further squeezed by the imminent reinstatement of caps on wholesale fuel prices by the Energy and Petroleum Regulatory Authority (EPRA).

The POAK notes that the wholesale market's maximum margin is approximately one per cent, yet withholding VAT on petroleum products is charged at two per cent per litre of fuel sold.

This discrepancy means that the players will be required to hold more than the collected profit. Selected agents are required to hold a portion of VAT and remit it to the Kenya Revenue Authority under withholding VAT.

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Chair of POAK, Martin Chomba, lamented the inadequate margins which he said should be reviewed urgently to reflect the current cost of supply.

"Our margins are simply not enough to support supply of petroleum products. They need to be reviewed urgently to reflect the actual cost of supply," Chomba said.

"We also pointed out that Petroleum margins need to be reviewed since it's had been 4 years since the last review. Costs have gone up over 70 per cent. An increase of VAT will mean we ass more capital for an already depressed margin."

Chomba also disclosed that POAK is petitioning for the removal of Withholding VAT on Petroleum Products. 

"We have with us a petition that all industry players have signed to demand a solution on this problem (withholding VAT)."

The authority has already lifted caps on wholesale fuel prices in 2021, but the impending reinstatement from mid this month will further dent the profits of oil marketers.

"We insist that WHT VAT can't work for the Petrol, diesel and Kerosene. The margins are 1 per cent of the cost while the WHT VAT is charged at 2 per cent," POAK said.

"This is an irrationality. We are TIMs compliant & our transactions are visible."

The lobby group highlights that the prices of fuel are highly regulated and capped by the authority, leaving oil marketers reliant on selling vast volumes to make a considerable profit.

POAK has warned that the industry will be forced to either absorb the additional tax costs or pass them to end consumers at the pump, which could have far-reaching implications on the economy.

The proposed VAT increase will negatively impact the industry, and the POAK is calling on the relevant authorities to consider the industry's plight and provide a lasting solution.