Rising Fuel Prices Deepen Economic Strain as Tax Experts Call for Structural Reforms

Nairobi, Kenya: Kenyans are grappling with rising fuel prices that continue to drive up the cost of living, strain household incomes, and squeeze businesses already operating on thin margins.

The latest increase, largely linked to global oil market disruptions fueled by geopolitical tensions in the Middle East, has pushed crude oil prices significantly higher, with ripple effects now being felt across the economy.

Despite the government’s move to reduce Value Added Tax (VAT) on fuel from 16 percent to 8 percent, experts say the relief is short-lived and insufficient.

“This is a temporary cushioning measure that does not address the underlying structural drivers of high fuel costs in Kenya,” said Patrick Nyangweso, Chief Executive Officer of the National Taxpayers Association (NTA). “Taxes and levies still account for nearly 40 to 45 percent of the pump price, which means Kenyans continue to bear the burden.”

Transport costs have risen, affecting mobility especially for low-income earners, while farmers are facing higher production costs due to expensive fuel for irrigation and logistics. Small businesses and manufacturers are also struggling with reduced profit margins, with some at risk of closure.

Nyangweso warned that Kenya’s position within the regional market is also under threat, noting that countries such as Uganda and Tanzania continue to maintain relatively lower fuel prices.

“This creates a situation where Kenyan goods become less competitive, while cheaper products from neighboring countries find their way into our market,” he said.

He added that rising fuel costs are likely to trigger inflationary pressures, particularly on food prices, further reducing purchasing power among households, while increased import bills continue to weaken the Kenyan shilling.

Amid these challenges, the association is calling for urgent and long-term reforms to stabilize the sector and protect consumers.

“We need a predictable and transparent tax framework instead of reactive fiscal measures,” Nyangweso said. “Kenya must also invest in strategic petroleum reserves to cushion against global supply shocks.”

He emphasized the need to reduce reliance on imported fossil fuels by investing in local exploration, particularly in areas such as the Kakamega Basin, as well as strengthening refinery infrastructure.

The NTA is also pushing for accelerated adoption of green energy and electric mobility, including stable tax incentives for electric vehicles, expansion of charging infrastructure, and support for local assembly.

“Kenya cannot continue to rely heavily on fossil fuels while other countries are transitioning. We must invest in sustainable alternatives that secure our future,” he added.

The association has also raised concern over what it describes as unjustified fare increases in the transport sector, arguing that some operators are exploiting the situation.

“Fuel price increases do not justify the level of fare hikes we are seeing. Operators must align their pricing with actual cost increments and avoid exploiting Kenyans,” Nyangweso noted.

Beyond fuel, the association is urging the government to rethink broader economic strategies, including promoting value addition for exports such as tea, coffee, and macadamia to boost foreign exchange earnings.

Nyangweso also proposed flexible work arrangements as part of the solution.

“We encourage both public and private sector institutions to adopt work-from-home policies where possible. This can significantly reduce transport demand and ease the burden on households,” he said.

With Kenya’s public debt estimated at between 65 and 70 percent of GDP and fiscal pressures mounting, the association is calling for a coordinated, multi-sectoral response.