By Brian Kiprono - Reporter
Kenya, 2 April 2026 - The government is considering a major shift in how fuel is taxed, in a bid to protect consumers from rising global oil prices and curb market speculation.
Treasury Cabinet Secretary John Mbadi told MPs that the proposal would see Kenya move from the current percentage-based VAT system to a fixed tax per litre, a change aimed at keeping pump prices more stable.
“We are thinking of changing the VAT from ad valorem to specific, so that we also do not lose revenue that we had factored into the budget,” Mbadi said while appearing before the National Assembly Finance Committee.
Under the current system, VAT rises and falls with global fuel prices, meaning motorists feel the full impact whenever costs surge. The proposed model would instead introduce a flat tax per litre, cushioning consumers during periods of high prices.
For example, petrol currently attracts about KSh28.52 in VAT per litre in Nairobi. A fixed rate , say KSh20, would lower that burden and offer immediate relief at the pump.
The move comes as pressure builds from global market instability, with the ongoing Middle East conflict pushing up fuel costs, insurance premiums and freight charges.
Mbadi warned that without intervention, Kenyans could soon face higher prices in the next fuel review cycle.
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At the same time, the government’s fuel stabilisation fund, meant to cushion such shocks, is running low. Of the KSh25 billion allocated this financial year, only about KSh17 billion remains, enough to hold prices steady for roughly three months.
“To stabilise the prices… KSh17 billion is not sufficient,” Mbadi noted, signalling the urgency behind the proposed tax changes.
Beyond price control, the Treasury also hopes the shift will discourage hoarding by fuel marketers, who often hold back supply in anticipation of price increases. A fixed tax, officials argue, would reduce incentives for such practices by making pricing more predictable.
Despite the concerns, Mbadi assured the public that fuel supplies remain stable, with the country holding about 16 days of petrol, 19 days of diesel and 49 days of kerosene, alongside incoming shipments.
He added that further measures, including possible VAT adjustments, could be considered if global pressures persist, as the government seeks to balance affordability with revenue needs.
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