Kenya Faces Steep Fuel Price Hike Driven by Taxes and Logistics Costs

Kenyans are grappling with a significant surge in fuel prices, with pump prices for Super Petrol, Diesel, and Kerosene rising by nearly double digits, according to Energy and Petroleum Cabinet Secretary Opiyo Wandayi. The latest pricing cycle, effective from July 15 to August 14, 2025, has seen Super Petrol retail at Sh186.31 per litre, Diesel at Sh171.58, and Kerosene at Sh156.58 in Nairobi, marking increases of Sh8.99, Sh8.67, and Sh9.65 respectively. This escalation has sparked widespread concern among consumers and lawmakers, with the reasons behind the hike rooted in a combination of global oil price fluctuations, local logistics costs, and Kenya's heavy tax regime.

Cabinet Secretary Wandayi, addressing the National Assembly’s Departmental Committee on Energy, highlighted that Kenya’s fuel is cheaper than Tanzania’s at the source due to lower import costs. However, the country’s multiple taxes and levies significantly inflate retail prices, making fuel more expensive than in neighboring Uganda and Tanzania. Kenya imposes nine different taxes on fuel, including excise duty, Value Added Tax (VAT), Petroleum Development Levy, Petroleum Regulatory Levy, anti-adulteration levy, merchant shipping levy, and the recently increased Road Maintenance Levy, which rose from Sh18 to Sh25 per litre in July 2024. These taxes account for a substantial portion of the pump price, with up to Sh82.74 per litre of Super Petrol going to taxes and levies.

Wandayi explained that while Kenya benefits from lower landed costs for imported fuel compared to its neighbors, the tax burden reverses this advantage. For instance, the landed cost of Super Petrol increased by 6.45% from $590.24 to $628.30 per cubic metre between May and June 2025, Diesel by 6.27% from $580.23 to $616.59, and Kerosene by 6.95% from $569 to $608.54. Despite these increases, the tax structure remains the primary driver of high retail prices, with Wandayi noting that fuel pricing is governed by the Petroleum (Pricing) Regulations, 2022, which consider landed costs, storage, distribution charges, gross margins, and applicable taxes.

The recent fuel price surge is also attributed to a Sh2.5 increase in local logistics and distribution expenses, including higher pay for fuel haulers and increased secondary storage fees. Wandayi pointed to the implementation of the second phase of the Cost of Service Study in Supply of Petroleum Products (COSSOP 2023), effective July 15, 2025, which introduced inflation-linked adjustments. These adjustments added Sh2.47 per litre (excluding VAT) to the retail price across all fuel types, driven by increases in stock financing, wholesale and retail margins, and intra-county transport within a 40-kilometre radius.

Additionally, a 10-cent variation in forex exchange rates contributed to the price hike. The Energy and Petroleum Regulatory Authority (EPRA) considered two consignments each of Super Petrol and Diesel and one of Jet A-1 fuel, delivered between June 10 and July 9, 2025, to set the current prices. The combination of these factors has led to a significant cost increase, further straining consumers already facing high living expenses.

Wandayi has faced scrutiny over the price increases, with critics arguing that the government’s policies exacerbate the burden on consumers. Kiharu Member of Parliament Ndindi Nyoro challenged the government’s explanation, asserting that excessive taxation and the securitization of fuel levies, particularly the Road Maintenance Levy, are the real culprits. Nyoro noted that over Sh80 per litre of petrol and Sh76 for other fuels go to taxes, and he criticized the use of the Road Maintenance Levy as collateral for loans without parliamentary oversight, calling for transparency and a public audit of off-book borrowing.

In response, Wandayi dismissed claims that the fuel price hike is linked to the securitization of the Road Maintenance Levy, emphasizing that the government has not introduced new taxes since the levy’s adjustment in July 2024. He attributed the price surge to global oil market dynamics, with Super Petrol, Diesel, and Kerosene seeing price increases of 6.72%, 9.33%, and 8.15% respectively between May and June 2025. Wandayi also clarified that the government-to-government (G-to-G) fuel import deal, intended to stabilize prices, does not shield consumers from global market fluctuations due to fixed freight and premium rates.

Treasury Cabinet Secretary John Mbadi defended the government’s decision to allocate an additional Sh7 from the fuel levy to finance road construction, arguing it was necessary to restart stalled infrastructure projects. Mbadi acknowledged public discontent but maintained that the funds were critical to address fiscal constraints and ensure contractors resumed work on major roads.

The fuel price hike has drawn sharp criticism from various quarters. The Motorists Association of Kenya (MAK) condemned the increases and the Road Maintenance Levy hike, labeling them as “economic sabotage” and demanding a refund of levies collected under what they deem an illegitimate framework. MAK argued that the new charges were introduced without public participation, violating constitutional principles.

The price surge is expected to have a ripple effect across the economy, increasing the cost of transport, electricity, food, and other essentials. Consumers are already battling high living costs, and the lack of fuel subsidy funds for the July 2025 pricing cycle has further exacerbated the situation. Wandayi noted that the government required Sh2.5 billion to stabilize prices but lacked the funds at the start of the 2025/2026 financial year. Of the Sh26.37 billion collected from the Petroleum Development Levy in the previous financial year, only Sh13.68 billion was used for fuel stabilization, raising questions about the redirection of these funds.

Analysts and industry experts have called for a review of Kenya’s fuel taxation policies. The Consumer Federation of Kenya previously urged the National Treasury to reduce VAT on fuel to 4% or zero-rate it to alleviate consumer burdens. There are also concerns about potential fuel adulteration due to the significant price difference between Super Petrol and Kerosene, prompting calls for increased vigilance.

As Kenyans brace for the economic fallout of the price hike, the government faces mounting pressure to address the tax burden and explore sustainable fiscal management to cushion consumers from future shocks. With global oil prices remaining volatile and local costs rising, the debate over fuel pricing and taxation is likely to intensify in the coming months.