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Monday, November 06, 2006

Why the price of Petrol remains high

Instinctively, I blamed the Oil Marketers for the high price of petrol but as I delve deeper I realise they are as much victims as the consumers!

As mentioned in my previous post, IMHO is blowing hot air regarding petrol prices. Finally, an Oil Marketer (Kenol/Kobil) has come out fighting the bullying government, putting the record straight while exposing us to the morass that is tax collection.

The Oil Marketers are arguing that since the government's taxes & levies constitute an increasing percentage (40% at the minimum) of the price of Petrol, the government should reduce its profligate ways.

The link below shows 70% of EABL's revenues go to the government in the form of taxes & levies. The government makes 3.3x what the shareholders get!
Essentially, for 100/- EABL gets from the sale of beer, the goverment gets 70/- without doing much! Not 70% of profits but 70% of REVENUES.... What a scam!

EABL's "distribution" graphic go to Page 29

Oil Marketers are in the same boat. Examples:

Refining crude at the Mombasa refinery is mandatory and oil firms must refine at least 70 per cent of their requirements at the facility, under the Baseoad Rule.Kinyua (Kenol-Kobil), however, pointed that two months ago, Kenya Petroleum Refineries Ltd increased its basic refining fee for crude oil processing from $1.75 to $2.15 per barrel, an increase of 22 per cent.

Kimunya (govt stooge) never mentions that the inefficient KPRL gets more for doing less while we (taxpayers) end up footing the bill.
How & why is KPRL allowed to charge more for refining?
Isn't this a subsidy for an inefficient refiner?
Why should taxpayers have to pay for it?
Who owns KPRL?
Isn't this monopolistic behaviour?

He said the adjustment followed an earlier increase last year by Kenya Pipeline Company (KPC) for its charges at the Kipevu Oil Storage Facility from $2 to $3 per cubic metre.

A subsidy for a government owned entity that is mired in scandal. The KACC wants to confiscate the MD's passport.
They now "own" a KES 1 Billion building instead of investing in upgrading the pipeline! Wrong priorities!
The road leading to the Fuel Depot in Nairobi is pathetic (& leads to dangerous situations) but they spend KES 1 Billion on an office building!

BTW, isn't this monopolistic behaviour?
What remedies do we have to reduce the costs inmposed on us as consumers?

Collection of taxes upfront since August last year and delayed tax refunds, he pointed out, had increased the cost of doing business.

So Oil Marketers (via the consumers) further subsidise the government! No wonder the government collection targets are so rosy since they do not refund the money!
Why should consumers have to pay for the excesses (bonuses, perks, outsized salaries, cars of the MPs & ministers?
Why do ministers who STEAL by overinflating their mileage allowances get to go scot-free?
If I file my taxes late, I am penalised but is it OK if the government REFUSES to refund my money?


Ssembonge said...

Just like I had guesstimated. GoK makes $2 per gallon of gas.

Kshs 80 x 3.something = 350

40% = Kshs 140

2 bucks. Ka-ching!

kenyanentrepreneur said...

That makes sense. However, how else can a cash strapped poor country like kenya obtain needed cash? you have to tax the corporations because 60% of the population is poor (they can't afford to pay taxes)

I'm surprised you haven't commented on Raila's observation that the NSE is being fuelled by drug money. At the end of the day doesn't it matter where the source of the money is coming from?


Kudrinketh said...

I generally detest taxes coz the govt ends up missapropriating the money anyways, and even if they invest it, they still cannot match the efficency of the private sector.

having said that, i feel that if these companies want less taxation then the govt should compell them to reinvest a certain percentage of their income in our economy.we do not want a situation where they get to remit most of their profit to their parent companies(SHELL,BP), at least with these taxes, some of the profit is reinvested in our economy.

I think Raila's observations are mute. if its true, then i'm glad that the corruption money is being reinvested in our economy.come to think of it, TI stated that corruption costs kenya sh. 85 billion, well so long as this money circulates in our economy the its all good.we should actually include corruption transactions in our GDP calculations.

coldtusker said...

The taxes are punitive and they are NOT on the profits but as part of the cost of the product.

Taxes that are too high will ALWAYS and up benefitting the tax evaders.

Furthermore, its the misappropriation of tax money e.g. the SUVs, huge salaries, anglo-fleecing that hurts the economy even further.

Singapore & Dubai are low-tax economies with "clean" governments.

Norway & New Zealand's taxes are higher but the benefits flow to the taxpayers NOT the politicians & cronies!

Odegle said...

Coldi, you are loudly silent on the chinas african summit!

coldtusker said...

I had commented on some other blog. There is NO free lunch & when the Chinese come calling well u better beware coz they will strip-mine Africa.

Wacha this BS, they dont care about governance & corruption coz it suits their needs.

They will take all the "valaubles" while supplying us with manufactured goods.

The politicians are selling us out. Look at the "free" oil prospecting license! Someone's hands were greased.

NARC will be awash in campaign funds from the chinese.

kenyanentrepreneur said...

Kenya's dilemma when it comes to taxes, is that it has a very high unemployment rate. until the unemployment rate goes down, the govt has no choice, but to tax corporations.
We can argue about the tax rates all day long (i'm not sure what they should be)..the question is not whether they should tax businesses, it's about how to strengthen the institutions of law in order to ensure that the money is used for it's intended purpose.

Also, nobody will re-invest their money in a country that doesn't have strong laws. If I'm a rich investor, i'm not leaving my money in kenya. It's too risky.


Anonymous said...

kenyanentrepreneur - Read Hayek.

It is thought that the ideal rate is a maximum of 20%. With appropriate punitive enforcement & penalties, there is little incentive to evade taxes.

kenyanentrepreneur said...

hayek who? I hope it's not an article on tax codes because you might as well just kill me with boredom.

That's interesting. Thanks for the answer.

is that a flat tax of 20% across the board?

coldtusker said...

ke - I think Anon meant (Salma) Friedrich Hayek an (Mexican)Austrian (beauty)economist.

You should also read Milton Friedman.

Taxation is a touchy subject but generally low tax countries (without natural resources) are economically better offf.

Prime examples are Hong Kong (now part of China), Singapore & Dubai.

kenyanentrepreneur said...

haven't milton friedmans economic policies been debunked (deficits don't, they do)

I think the rule of law and other policy initiatives are more important than the tax rate.

coldtusker said...

ke - Sigh... That's Keynes not Friedman...

kenyanentrepreneur said...

From Friedmans memoirs:
"I would rather have government spend one trillion dollars with a deficit of a half a trillion than have government spend two trillion dollars with no deficit." (pg. 354)


anyway, I mentioned friedman because he was one of the architects of reaganomics, which ushered in an era of very high deficits. Keynes came before friedman, but if you want to go that far back you are welcome to.

coldtusker said...

LOL... I knew you would come up with the deficit...

I should have mentioned earlier that MF recanted his support of Keynesian economics.

Unlike most African "big men" who never admit errors, many of the lights of the Western world do so!

Reaganomics was less about deficits than MONETARISM. MF was a pioneer monetarist. That was what why he won the Nobel Prize.

Reference Chile & Chicago Boys.

coldtusker said...

Regardless of MF, Keynes or any other economists... Common sense says that higher the rate, the greater the incentive to evade taxes.

I still believe the hurdle rate should be 20%, which will mean less evasion thus higher compliance at a lower (enforcement) cost.

Furthermore, it ENCOURAGES investments that drive the economy that generates additional marginal growth.

kenyanentrepreneur said...

Alright...fine. You want to get into ivory tower economic discussions?

Bill clinton proved that MF's theory was wrong. He cut spending AND balanced the budget (at the same time).

I'm surprised more african countries haven't copied pinochet's model by using people like the chicago boys. Although I don't think chile was ever as poor as any african country (they're mzungu's!)

coldtusker said...

Chile was not on top of the dogpile.

Countries that have excelled include Mauritius & Botswana.

Mauritius has little in the way of natural resources. Kenya & TZ have more beaches. Sudan has larger sugarcane plantations.

Botswana could have been an Angola but they were smarter than most African countries. I liken them to Dubai i.e. they are slowly EXPANDING other sectors of the economy using their mineral wealth.

coldtusker said...

Bill, LOL... It was not Bill, it was the GOP's "contract with America"...

As is there are too many moving factors in an economy as large as the US.

Greenspan was NOT a clinton favourite but clinton had no choice but keep him on. Greenspan to the best of my knowledge was firmly in the Monetarist School.

After 12 years of successful Monetarism, with inevitable dips, it would not benefit clinton to "dump" the monetarist policies.

Finally, even the democrats wised up & became Centrists. I fear the GOP has become more spendthrift than the democrats!

Politicians of most hues are interested in themselves rather than their constituents.

Have you watched the classic "Mr. Smith Goes to Washington"?

kenyanentrepreneur said...

I don't why you keep laughing.

I knew you'd say that (you republican!)

if the balanced budget was achieved under a GOP congress, why haven't they done it again? they've controlled both houses for 12 years!

ok enough of this. I'm going to be talking about futures trading soon.

Kudrinketh said...

I bet Coldtusker is a republican and KE is a democrat.Reagan took credit for what Jimmy Carter started,Clinton took credit for what Bush Sr. started.You noticed that both Carter and Bush Sr. lost bids for second term because at the time the economy was doing badly due to the structural adjustments that they initiated, only for their predesesors to take all the credit.

kenyanentrepreneur said...

I think Botswana is overrated. It just looks better because it's on a continent full of basket cases. Then of course, they have that huge AIDS problem (what is it? 30%?)

Mauritius, like Dubai has become a great "banking" center (money laundering, tax havens, basically)..why do you think all those offshore companies are there?

btw - have you seen wesley snipes in your neck of the woods? that's another one who doesn't believe in paying taxes.

coldtusker said...

Wesley (I do like his movies...) was supposedly in Namibia (not Kenya)...

Of course, Kenya would be a better choice since we also harbour felicien kabuga among other crooks.

For Heaven's sake... where else could criminals like the arturs live in the lap of luxury, get government protection while flaunting local laws with impunity?

coldtusker said...

ke - I feel bi-polar when commenting on your comments.

kudri - I am not Republican. Sorry.

Mauritian leaders are/were far smarter than the average African prez/king/dictator for life.

Under ACP rules, African countries had quotas at which they could export sugar to Europe at a premium to market prices.

Since many of these countries could not or did not fulfil the quotas, the Mauritians "filled" them instead. Smart move.

During SA's "apartheid" regime, Mauritius remained an outlet for SA. Morals aside, they did what they had to do to survive.

Mauritius has become a "movie" magnet for foreign films including Bollywood.

Finally, they attract high-end tourism thus little wear & tear while extracting the max value.

Kenya lost "The Ghost & the Darkness" to S.Africa coz of silly regulations & poor infrastructure.

Tourism is a mass affair thus denying us maximum returns.

Look at Yew.
Smart leader + poor resources + strong work ethic + honesty = Prosperity (Singapore)
Corrupt Idiot + natural resources + dishonesty = Disaster (Congo/Zaire)
Corrupt Idiot + super-corrupt government + limited natural resources = Apathy (Kenya in moi's days)

kenyanentrepreneur said...

I will stop commenting since I don't want to be responsible for your mental deterioration.

coldtusker said...

ke - I'd rather have your comments than the recent NARC-spam I have been receiving...

No doubt, mutua is making sure he is worth his $100,000 package... by trolling the Kenyan blogosphere...

Kudrinketh said...

I noticed same NARK spam on bank's blog, i guess election fever is on.talking of which, do not deny being republican,its not a dirty word.

I remember my first semester in states, my govt instructor had us take a survey on socio/economic issues. there were bout 3 kenyans in that class and we all came out as republicans.

I'm very sure lots of kenyans are closet republicans.think about it,we dont like taxes(govt eats the money),we are homophobic(ever met any openly gay kenyan?),we are religious(we got how many prophets?),abortion is still very illegal,we are tough on crime(mob justice) you get my drift.

coldtusker said...

kudri - You misunderstood... I am NOT a Republican... I am a Libertarian...

Kudrinketh said...

I find libertarians as egoistic and non-pragmatic,all that liberty crap is easier said when you know you'll never run even a kiosk.i like to keep it real.

RIP.Gerald Levert,dead at 40.

Kudrinketh said...

I thought this was funny,found off Its just a joke.
Comparison of Libertarians and
What's the difference between Anarchists and Libertarians??

Libertarians are anarchists with money.

Anarchists believe property is theft. Libertarians believe everything
is property.

Libertarians are bosses; anarchists work for them when they run out of
other options.

Libertarians buy more guns, but anarchists use more ammo.

Libertarians ride in stretch limos; anarchists throw bricks through
their windshields.

Libertarians go shopping; anarchists go shoplifting.

Libertarians go to the police after they've been mugged; anarchists
get mugged by the police.

A libertarian wants to marry another libertarian, but only after
sleeping with enough anarchists.

Anarchists ignore the IRS; Libertarians hire accountants and attorneys
to fight them.

Libertarians think the government is trying steal the property they
rightfully own; anarchists think the government is trying to defend
property that nobody rightfully owns.

Libertarians are organized in a political party; anarchists aren't
organized in anything.

Anarchists ignore elections; Libertarians run for office, vote and

Libertarians think anarchists are naive and unrealistic; anarchists
don't care what libertarians think.

coldtusker said...

LOL... well... better to be a libertarian!

I like the "Anarchist with money = Libertarian" best...

Seriously... I don't care about most of what folks do in the privacy of their homes but leave me in peace in public!

And don't do what you want to do with my money!

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