President William Ruto’s abrupt reversal order on value-added tax (VAT) on fuel, triggered an overnight scramble among oil marketers seeking to reconfigure their systems, amid concerns about unpredictable policy shifts in the Kenyan business space.
The abrupt decision to halve VAT on petroleum products from 16 percent to 8 percent-announced late Wednesday and effected at midnight-offered immediate relief to motorists, but left firms grappling with operational and legal complexities after two days of shifting tax signals.
Super petrol in Nairobi fell by Sh9.37 to Sh197.60 a litre in the latest review by the Energy and Petroleum Regulatory Authority (Epra), while diesel declined by Sh10.21 to Sh196.63. The reductions came barely 24 hours after prices had surged past Sh206 per litre under a 13 percent VAT regime, itself a short-lived revision from the statutory 16 percent rate.
But behind the pump price relief lies a deeper disruption within the fuel supply chain, where companies have had to overhaul complex IT and accounting systems multiple times within days.
A former chief executive at a major oil marketing company said the rapid changes triggered a round-the-clock systems overhaul across the industry.
‘The issue of VAT [changes] is not just financial-it is an IT issue,’ the ex-senior official, with vast experience in the workings of the industry, told the Business Daily.
‘Teams have been working through the night to simulate changes, deploy them and confirm they are working across all branches. One CEO, who is a friend of mine, left the office at 5am,” the source added.
The disruption has been amplified by the integration of oil marketers’ systems with those of the Kenya Revenue Authority’s Electronic Tax Invoice Management System (eTIMS) fuel module, a reform designed to tighten compliance but now complicating rapid tax adjustments.
Tax experts say the sequencing of policy changes-from 16 percent to 13 percent and then to 8 percent within a narrow window-has strained both compliance systems and business planning assumptions.
Alex Kanyi, a tax partner at Cliffe Dekker Hofmeyr (CDH), said while firms had anticipated rising global oil prices, they had not expected such abrupt and repeated shifts in the VAT rate.
‘There is a process to how these systems are configured, especially after integration with KRA,’ Mr Kanyi said on the telephone.
‘They were aligned to 16 percent. Moving to 13 percent would already require reconfiguration, but before firms could fully adjust, the rate was again reduced to 8 percent.’
He added that the 8 percent rate, having existed previously, may be easier to implement technically than the interim 13 percent.
However, the quick succession of changes has introduced operational complexity, particularly for firms relying on external service providers to manage enterprise resource planning systems.
‘You have external providers who must come in to adjust these systems each time the rate changes, and that comes at a cost,’ Mr Kanyi said.
Smaller oil marketers are expected to bear the brunt of the disruption as they lack the financial and technical capacity of larger firms to quickly adapt to regulatory shocks.
Besides the operational challenges, the latest tax changes is also raising legal and policy questions about the consistency of Kenya’s fiscal framework.
Under the VAT Act, the National Treasury is empowered to vary the VAT rate within a defined band to enhance predictability for businesses. However, analysts note that the move to eight percent appears to stretch that framework, potentially undermining the very certainty the provision was designed to guarantee.
‘The law was meant to provide predictability by capping how far the rate could move,’ Mr Kanyi said. ‘But the way this has been implemented does not seem anchored on that predictability.’
The development underscores a broader tension between political responsiveness and policy stability, as the government moves to cushion consumers amid rising global oil prices and a high cost of living.
The abrupt VAT cut followed a public backlash after fuel prices hit record highs earlier this week, prompting swift intervention by the National Treasury through a legal notice issued by Treasury Cabinet Secretary John Mbadi.
While the temporary reduction is expected to ease inflationary pressure in the short term, particularly in transport and food prices, tax experts warn that frequent and abrupt tax changes risk distorting market signals and complicating long-term planning for businesses across sectors, from logistics to manufacturing.