January 21, 2019

New Tax to Target Fuel Effeciency

cars emissions

By Etaarifa Contributor

The Energy ministry is set to recommend to National Treasury the introduction of tax incentives meant to encourage importation of fuel-efficient vehicles. A fiscal policy that encourages buyers to prefer more efficient, lower emission vehicles is likely to be proposed essentially introducing a carbon tax.
The plan follows the release of the Global Fuel Economy Initiative (GFEI) report, which shows that fuel consumption by light duty vehicles in Kenya is above the world’s average. In determining fuel-efficient vehicles, the Government will consider the global fuel consumption average of 13.9 kilometres per litre. Currently, Kenya’s mean consumption for light vehicles, which constitute about 53% of the total registered vehicles, is estimated to be 13.3 kilometres per litre.
It is envisioned that the introduction of tax rebates for importers of clean vehicles will result in economic gains by reducing the amount of foreign currency used in purchase of vehicles and petroleum products, thereby improving the country’s balance of payments. The idea is to reduce air pollution and greenhouse gas emissions which are bad for the health of citizens.
The GFEI study was carried out in Kenya, Chile, Indonesia and Ethiopia. Locally, it was conducted between 2010 and 2012 where it established that 99% of all light duty vehicles registered by Kenya Revenue Authority (KRA) were classified as used. Kenya is also likely to revise the imported used car age limit to five years (from seven). In 2012, KRA’s cumulative vehicle registration was 2.02 million with vehicle numbers estimated to be increasing at the rate of 12% annually, according to the report.
The United Nations Environment Programme (UNEP) notes that rates above 10% are considered high and out of sync with the rate of development of infrastructure such as roads. According to the Economic Survey 2014 by the Kenya National Bureau of Statistics, the value of imported petroleum products in 2013 reduced marginally to Kshs.315billion from Kshs.326billion in the previous year. GFEI is a partnership of five organizations, among them the International Energy Agency and UNEP. The Government separately plans to introduce a stabilization fund, modelled as a hedge against high fuel prices in future.

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