Calculation of VAT on fuel does not add up
By MUNGAI KIHANYA
The Sunday Nation
Nairobi,
09 September 2018
I do not understand
how the Energy Regulatory Commission (ERC) is doing its math. When
announcing the new electricity tariffs, the ERC said that the first
10kWh will be charged at Sh12 each and any consumption above this would
cost Sh15.80 (up to a maximum of 1,500kWh).
But when the bills
started arriving, the calculation was done differently: anyone who
consumed above 10kWh was charged Sh15.80 for the entire consumption
instead of for the units above the10kWh limit. To date, ERC has not
clarified this discrepancy.
One month down the
road there is another inconsistency: this time in the calculation of new
prices of petrol after implementation of Value Added Tax. According to
the notice of August 14 2018, the maximum price of unleaded premium in
Nairobi was fixed at Sh113.70. After implementing the VAT rule on
September 1, the price was changed to Sh127.80.
Now the notice from
the Kenya Revenue Authority (KRA) on this matter stated that “…VAT
is chargeable on all petroleum products at a rate of 16% of transaction
value”. The
ordinary meaning of “transaction value” is the Sh113.70 that Nairobi
motorists were paying before 1st September. Thus, ERC should
have simply added 16% to this and get Sh131.89. I asked ERC to explain
how they arrived at Sh127.80 but they did not respond.
Nevertheless, I
perused the breakdown of costs that ERC used in arriving at the new
prices. The starting point for the calculation is the weighted average
landed cost of the petroleum. In the notice of 14 August, this was
Sh59.05 per litre while on the one of 1st September, it was
Sh57.82.
I asked ERC to
explain why the landed costs are different yet they are for the same
importation period. Again, there was no reply! Instead, ERC issued a
press statement on 5th September simply insisting that the
calculations are correct.
Undeterred, I decided
to work backwards and see if I can make some headway. The VAT amount
indicated in the cost breakdown is Sh14.71. If this is 16%, then what is
100%? The answer is Sh14.71 divided by 16%; that is Sh91.94.
Now the main cost
items listed are: landed cost = Sh57.82; storage and distribution =
Sh3.90 and importers’ and dealers’ margins = Sh10.89. Adding these
together yields Sh72.61.
This is Sh19.33 less
than the VAT taxable amount of Sh91.94. So, something is missing.
After the direct
product costs (Sh72.61), there is a list of seven taxes and levies
before the VAT amount. Ordinarily, levies do not attract VAT. That
leaves the Excise Duty (Sh19.90 and the Import Declaration Fee (Sh1.09).
These total up to Sh20.99.
When we add Sh20.99
to Sh72.61, we get Sh93.6. This is Sh1.66 more than the calculated
ex-VAT amount (Sh91.94). In short; the numbers don’t add up.
ERC needs to clarify
two issues: first, why the landed cost used on 1st September
is different from that of 14th August and, second, which cost
items are included in the calculation of VAT.
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