Oil firms put on the spot over high LPG cost despite tax exemptions

MPs have put oil industry players in the spotlight for the high cost of cooking gas.

The members of the National Assembly’s Budget and Appropriations Committee have noted that retail prices have been on a steady climb over the recent years despite the fuel getting a tax exemption in a bid to push consumption. 

The Committee in a report on the 2025-26 budget said that between 2020 and 2024, prices went up by 55.7 per cent.

This has defied expectations that prices would remain stable or even drop following tax exemptions by the National Treasury that were aimed at spurring consumption. 

The government, through the Finance Act, 2023 removed the exemption of Liquefied Petroleum Gas (LPG) from the Import Declaration Fee (IDF) of 2.5 per cent and the Railway Development Levy (RDL) of two per cent.

The Act also zero-rated Value Added Tax (VAT) on LPG. VAT on LPG was initially zero-rated but introduced at the standard rate of 16 per cent before it was halved to eight per cent in 2022 and again zero rated in 2023.

“Despite targeted policy interventions such as exempting LPG from the Import Declaration Fee (IDF) and the Railway Development Levy (RDL) and zero rating of LPG as well as locally manufactured cylinders and storage tanks, the retail cost of LPG has increased significantly by 55.7 per cent from Sh2,047.28 per 13 kilogramme cylinder in 2020 to Sh3,188.34 per 13 kg cylinder as of 2024,” said BAC in its report on the 2025-26 budget estimates.

“The sustained upward trend in LPG prices presents challenges to household affordability, particularly for low-income consumers and poses a barrier to the widespread adoption of clean cooking energy solutions envisioned under the national energy access goals.”

The government has been pushing for LPG use among Kenyan households as well as institutions such as schools to replace dirtier fuels such as kerosene, charcoal and firewood. 

Its push has borne fruit, with LPG consumption growing substantially over the last decade to 414,900 metric tonnes in 2024 from 93,900 tonnes in 2013. Annual per capita consumption, however, remains low at about seven kilogrammes against a target of 15kg.

LPG industry players, including oil marketing companies selling cooking gas at the retail level, have in recent past come to focus, following revelation that they could be pocketing huge amounts at the expense of consumers.

Wholesale LPG prices in Kenya are the lowest in East Africa, with a 13kg refill priced at about Sh1,200, which is about 30 per cent of retail prices currently hovering at between Sh3,200 and Sh3,500, pointing to high costs and including margins for players delivering cooking gas to consumers.

In the budget for the next financial year, Treasury has allocated Sh1.76 billion for the distribution of petroleum and gas, a bulk of which is expected to be used in the distribution of 6kg cooking gas cylinders.

The Energy and Petroleum Ministry is expected to distribute 100,000 cooking gas cylinders to 100,000 households over the 2025/26 financial year, according to budget documents.

It has a goal of eventually distributing 9.6 million cylinders to households. The government has repeatedly attempted but largely failed in the exercise of distributing cylinders to Kenyan homes.

It is in a renewed push and aside from the distribution of 6kg cylinders to households, it is building LPG infrastructure in schools as it seeks to migrate them from traditional fuels such as firewood.

Treasury, in the budget documents, said there are 200 learning institutions that are expected to be equipped with clean cooking gas facilities over the 2025/26 financial year. 

The Ministry says it has started the rollout of a pilot LPG for public institutions of learning project, where 20 schools have been selected as pilot centres.