NAIROBI, Kenya — The Economists Society of Kenya (ESK) has urged the government to consider a temporary reduction in Value Added Tax (VAT) on petroleum products to ease pressure on households and businesses affected by rising fuel prices linked to global supply disruptions.
In a policy statement released Tuesday, the society warned that escalating geopolitical tensions in the Middle East, alongside disruptions along the Strait of Hormuz (a critical global oil transit route) have significantly increased volatility in international oil markets, with direct spillover effects on oil-importing economies such as Kenya.
Citing data from the International Energy Agency, ESK noted that a substantial share of global crude oil passes through the Strait, making it one of the most sensitive chokepoints in global energy supply chains.
“Such disruptions are a major driver of global price spikes, which transmit rapidly into domestic markets, particularly for net oil-importing economies like Kenya,” the statement read.
Recent pricing data from the Energy and Petroleum Regulatory Authority (EPRA) shows diesel prices in Nairobi have risen above Sh206 per litre, highlighting the mounting cost pressures facing transporters, manufacturers, and consumers.
According to the society, research by the World Bank and the International Monetary Fund indicates that fuel price increases have a strong and immediate pass-through effect on inflation. This is mainly driven by higher transport costs, increased food distribution expenses, and rising production costs across key sectors of the economy.
To cushion the economy, ESK recommended a “targeted, time-bound, and carefully sequenced” fiscal intervention, including a temporary reduction of VAT on petroleum products to between 8 and 10 per cent, or a short-term suspension of the tax.
However, the society stressed that any tax relief must remain strictly temporary to avoid long-term strain on public finances and fiscal stability.
“The intervention should be clearly defined in duration and scope to prevent structural distortions in revenue collection and energy pricing,” the statement cautioned.
ESK also proposed specific conditions under which the temporary tax relief should be withdrawn. These include a sustained decline in global oil prices, particularly if Brent crude falls below USD 85 per barrel for at least two consecutive weeks.
Locally, the society said the measures could be reversed if diesel prices fall to Sh190 per litre or below across two consecutive pricing cycles.
Additional indicators include a sustained decline in transport-related inflation as reported by the Kenya National Bureau of Statistics (KNBS) for at least two months, as well as the restoration of national strategic petroleum reserves to a minimum of 30 days of supply.
The statement emphasized that the current fuel price surge is largely driven by external supply-side shocks, limiting the effectiveness of domestic fiscal interventions in fully offsetting the impact.
It also noted the logistical nature of global oil supply chains, particularly shipments from the Middle East to East Africa, which typically take several weeks. As a result, the society warned that policy responses must be carefully calibrated to avoid creating distortions that persist beyond the disruption itself.
Beyond tax relief, ESK recommended tighter regulatory oversight to prevent hoarding and speculative activity in the local fuel market. It also called for improved transparency in fuel stock reporting and closer coordination between regulators and industry stakeholders.
The society further urged the government to consider temporarily drawing on strategic petroleum reserves as a buffer against short-term supply shocks, while maintaining clear and consistent public communication to stabilize market expectations.
Should global disruptions persist, ESK warned that additional measures — including targeted demand management and fuel conservation strategies — may be required to safeguard national supply and economic stability.
The recommendations come amid ongoing implementation of Government-to-Government fuel import arrangements, which the society said must be factored into any policy adjustments to avoid disruptions in supply chains.
ESK maintained that its proposals are designed to strike a balance between immediate consumer relief and long-term fiscal discipline, cautioning against prolonged subsidies that could undermine macroeconomic stability.
The society has formally requested engagement with the national government and the Energy and Petroleum Regulatory Authority (EPRA) to further deliberate on prevailing macroeconomic conditions, signaling its intention to play a more active advisory role as Kenya navigates continued global energy uncertainty.
