How 2018 Petroleum VAT Undermined Kenya’s Economic Potential and What Its Reversal Would Unlock
Editor’s note: In this article, Martin Chomba, Chairman of the Petroleum Outlets Association of Kenya, critiques the 2018 introduction of VAT on fuel and argues for its reversal. Drawing on economic projections and grassroots realities, Chomba makes the case that scrapping the tax could unleash billions in small enterprise growth, create millions of formal jobs, and ultimately generate more government revenue through broader, more sustainable taxation.
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On September 1, 2018, Kenya Revenue Authority began charging Value Added Tax on all petroleum products at the pump. By doing so, the government immediately diverted what is now roughly KSh 11.53 billion each month away from the productive economy and into state coffers, foregoing the far greater benefits of keeping that capital circulating among small-scale businesses.
Source: Original
From the day of its introduction, fuel VAT sharpened costs for every enterprise that relies on transport or power generation. Higher diesel and petrol prices squeeze working capital, forcing many MSMEs to scale back on inventory replenishment, postpone equipment upgrades, or defer hiring plans. With Kenya’s informal sector accounting for over 80 per cent of employment, this hidden tax on logistics has throttled the very engine of job creation.
A case for reversing fuel VAT to empower MSMEs
Reversing the petroleum VAT would restore KSh 11.53 billion to Kenya’s grassroots economy each month. Channelled through microfinance institutions in loans averaging KSh 100,000, it could reach more than 115,000 viable small enterprises per cycle.
Fresh capital routinely drives a 15-20 per cent uplift in turnover, allowing traders to diversify stock, adopt efficient delivery vehicles, and extend customer credit. Those gains ripple outward, boosting supplier orders and household incomes.
The knock-on effect for employment would be monumental. Even conservatively assuming each assisted business hires two additional workers, monthly reversals could generate 230,000 new formal jobs, totalling nearly 2.8 million positions in a year. Each wage earner contributes PAYE, mitigating social welfare burdens and fuelling further revenue growth.
Broadening the tax base while advancing bottom-up transformation
As MSMEs grow and formalise, they begin to contribute across multiple tax bases: turnover tax, corporate income tax, and VAT on value-added goods and services. Projections show that a well-targeted KSh 11.53 billion injection could yield KSh 12–15 billion in fresh monthly tax receipts, already eclipsing the original fuel VAT haul. Add in expanded consumer spending, and total revenue gains could exceed KSh 20 billion monthly—almost double the amount the government once deemed untouchable.
Beyond raw figures, scrapping petroleum VAT aligns perfectly with the Bottom-Up Economic Transformation Agenda. It decentralises growth, empowers rural and peri-urban communities, and builds resilience against global oil price fluctuations.
Instead of relying on a single, volatile revenue stream, Kenya would diversify its government income through a dynamic, broad-based tax system.
Reversing the 2018 fuel VAT is more than a policy tweak; it’s a strategic re-direction of KSh 11.53 billion per month from static collection into vibrant investment. By unlocking this capital, Kenya can ignite unprecedented small-business prosperity, generate millions of jobs, and expand the formal tax base to levels that diminish the original petroleum VAT revenue.
The author is Martin Chomba, Chairman of Petroleum Outlets Association of Kenya.
Views expressed in this article are solely those of the author and do not reflect the official position of TUKO.co.ke.
Proofreading by Mercy Nyambura, copy editor at TUKO.co.ke.
Source: TUKO.co.ke
