Kenyans Protest Fuel-Price Spike as State Weighs Cutting Spending

(Bloomberg) -- Kenyan motorists began protests over the introduction of a tax on fuel, amid reports the government may consider cutting spending if it’s forced to rescind the levy.

Treasury Secretary Henry Rotich announced the implementation of the 16 percent levy on Sept. 1, even after lawmakers voted to postpone its introduction, which has already been delayed for five years. The tax may boost inflation to 6 percent in September and 7.5 percent next month if it’s retained, according to Stanbic Holdings Plc, a Nairobi-based lender.

Vehicle owners on Tuesday blocked the Kisii-Bomet highway in the west of the country and roads in the central Mount Kenya region, Motorist Association of Kenya Chairman Peter Murima said by phone from the capital, Nairobi. Fuel distributors also plan to stop deliveries in protest at the new levy, he said.

“Last evening we had a meeting with the Kenya Independent Petroleum Distributors Association and agreed to stop fuel distribution from the source,” Murima said. “By midday, we are supposed to have serious shortage because people will start panic buying.”

Following the increase in fuel prices, members of a motor bike taxi riders lobby group increased fares by as much as 100 percent in parts of the country, Boda Boda Safety Association of Kenya national Chairman Kevin Mubadi said. Fares increased to a minimum 50 shillings ($0.50) from 30 shillings in some rural areas and doubled to at least 100 shillings for trips in parts of the capital, Mubadi said Tuesday by phone.

Spending Cuts

The Treasury may consider dropping the tax and cut spending by ministries and county governments instead, the Nairobi-based Standard newspaper reported, without citing anyone.

The imposition of value-added tax on fuel was legislated in 2013, but its introduction was postponed until 2016, and then again delayed until 2018. President Uhuru Kenyatta has yet to approve parliament’s proposal last week that the levy be again held back until 2020, and until he does the 2013 law is in effect.

The new tax is projected to net the government about 71 billion shillings ($705 million) of additional income in the fiscal year through June 30, 2019, according to the Treasury, helping fund a record 2.5 trillion-shilling budget.

To contact the reporters on this story: Helen Nyambura in Nairobi at hnyambura@bloomberg.net;Eric Ombok in Nairobi at eombok@bloomberg.net

To contact the editors responsible for this story: Paul Richardson at pmrichardson@bloomberg.net, ;Christopher Kingdon at ckingdon@bloomberg.net, Michael Gunn

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