Kenya: Tax Laws Amendment Act 2026 Extends 8% Fuel VAT

• President William Ruto signed the Tax Laws (Amendment) Act, 2026, extending the 8% VAT on petroleum products for an additional 90 days.
• EPRA's latest fuel price review, effective October 15 to November 14, maintained the 8% VAT but saw significant price increases for petrol, diesel, and kerosene in Nairobi.
• The price hikes were attributed by EPRA to rising landed costs of imported refined petroleum products.
• The Motorists Association of Kenya (MAK) demanded an independent audit of the price review and transparency regarding the government-to-government petroleum import deal.
• MAK questioned the discrepancy between landed cost increases and pump price adjustments, particularly for kerosene, and called for detailed pricing data disclosure.

For businesses operating within Kenya's petroleum sector, particularly compliance officers and legal counsel, this legislative update necessitates immediate attention.

President William Ruto recently enacted legislation extending the reduced Value Added Tax (VAT) rate on petroleum products in Kenya. This development, formalized by the Tax Laws (Amendment) Act, 2026, allows for a further 90-day application of the 8 percent VAT on fuel. The signing took place at Eldoret State Lodge on a Friday, following closely on the heels of the Energy and Petroleum Regulatory Authority's (EPRA) latest fuel price review, which had already incorporated this 8 percent rate.

EPRA's announcement of new maximum retail prices on October 14 set the rates for the period spanning October 15 to November 14. Despite the continued application of the reduced VAT, consumers in Nairobi saw significant price adjustments. Petrol prices increased by Sh12.93, reaching Sh226.96 per litre, while diesel climbed by Sh9.90 to Sh227.76 per litre. Kerosene experienced the most substantial hike, rising by Sh28.49 to Sh219.87 per litre. EPRA justified these adjustments by citing increases in the weighted average cost of imported refined petroleum products, stating the 8 percent VAT was maintained as part of the government's policy to mitigate the impact of high international oil prices on consumers.

The legislative framework for this extension is the Tax Laws (Amendment) Act, 2026, which grants the Treasury Cabinet Secretary the authority to prolong the application of the reduced 8 percent VAT on petroleum products for an additional 90 days. This measure became critical as the previous relief period for the reduced VAT rate had expired on October 14, creating a potential gap in the tax regime. The swift action by President Ruto ensures continuity of the lower VAT rate, preventing an immediate revert to the standard rate.

For businesses operating within Kenya's petroleum sector, particularly compliance officers and legal counsel, this legislative update necessitates immediate attention. Continued adherence to the 8% VAT rate on fuel products is now legally mandated for the extended period. This impacts various operational aspects, including pricing strategies, invoicing procedures, and tax reporting obligations, requiring prompt adjustments to ensure full compliance and avoid potential penalties. The Kenya Tax Laws Amendment Act 2026 fuel VAT is a key regulatory instrument shaping the fiscal landscape for fuel distributors and retailers.

Despite the government's stated intention to cushion consumers through the Kenya 8% petroleum VAT extension, the recent EPRA fuel price review Kenya has sparked renewed public concern over the escalating cost of living. The significant increases in pump prices for petrol, diesel, and kerosene are expected to ripple through the economy, affecting transport costs, household energy budgets, and the prices of essential goods. EPRA attributed these increases to a rise in the landed cost of imported products: petrol's landed cost rose by 11.81% (from US$874.26 to US$977.55 per cubic metre), diesel by 11.32% (from US$957.05 to US$1,065.38 per cubic metre), and kerosene by 9.41% (from US$1,003.87 to US$1,098.31).

In response to these developments, the Motorists Association of Kenya (MAK) has voiced strong objections and called for greater transparency. The association demanded an independent audit of the latest fuel price review and a thorough examination of the government's Kenya G-to-G petroleum import arrangement. MAK specifically questioned the disproportionate increase in kerosene's pump price, which saw the largest percentage jump at the pump despite having the lowest reported percentage increase in landed cost. The association has urged EPRA to publish detailed pricing worksheets, including international benchmarks, landed costs, exchange rates, freight, insurance, taxes, levies, margins, and other adjustments, to allow consumers to understand the factors influencing final prices and distinguish between international market fluctuations and domestic William Ruto fuel tax policy decisions. Furthermore, MAK seeks full disclosure of the costs and benefits associated with the G-to-G arrangement, encompassing supplier premiums, financing charges, freight expenses, and foreign-exchange exposure.

Compliance officers and legal counsel for businesses in Kenya's petroleum sector must ensure continued adherence to the 8% VAT rate on fuel products, as extended by the Tax Laws (Amendment) Act, 2026, for an additional 90 days. This legislative development impacts pricing, invoicing, and tax reporting obligations, requiring immediate operational adjustments to avoid non-compliance.

Source: Original reporting via Capital FM