Fuel levy to slow economic growth this year

Economic growth is likely to slow this year due to the impact of the introduction of value added tax on fuel.

Chief executives of blue chip companies in Kenya say they expect subdued demand of goods and services in the remaining months of this year due to higher prices.

According to the latest Stanbic Purchasing Managers Index, the CEOs raised concern over the confusion arising from implementation of the 16 percent VAT on fuel.

Kenyans are staring at high cost of goods and services this month as the impact of the valued added tax on fuel starts to trickle down to the economy.

The rate of inflation eased to record levels at 4.04 percent in August well within the Central Bank of Kenya’s target band of 2.5 to 7.5 percent.

However, the era of low inflation may be coming to an abrupt end following the implementation of the 16 percent valued added tax on super petrol and diesel.

The impact of the law has started to bite with transporters raising transport cost while manufacturers have also warned of increased cost of goods if the law is not repealed.

Chief executives of leading blue chip companies in Kenya have said higher prices and hence inflation would slow demand for goods and services.

According to the Stanbic bank’s monthly purchasing manager’s index for August, a majority of CEOs said that slow demand for goods is likely to make many workers redundant.

In the month of August, orders rose the sharpest while most companies hired more workers due to increased demand. In the month PMI rose from a low of 53.6 in July to 54.6 which is an indicative of marked improvement in the health of the Kenyan private sector.

Purchasing power has been rising since June this year as the economy started to pick after a tumultuous political period.


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