TANZANIA FUEL TAX RETURNS UP AS REGULATOR NIPS TRICKS

ESSENTIAL COMMODITY: As soon as the regulator introduced fuel marking, the quality steadily improved and customers begun to have more confidence in the refueling stations as complaints also went down.

In September 2010, the Tanzania Energy and Water Utilities Authority (EWURA) hired Canadian firm, Global Fluids International, to help limit fuel adulteration and other malpractices associated with smuggling. Fuel marking was introduced. Recently Titus Kaguo, the EWURA Manager for Communications and Public Relations, spoke to Andrew Zablon about the impact of this measure on government revenues. Below are excerpts.

Question: How do you assess the situation now, compared with  before you entered into an agreement with GFI International? 

Answer: Since commencement of the fuel-marking program in September, 2010, the trend shows that there have been a significant increase of volumes of reported imported petrol and diesel for the local market and a decrease of kerosene. This was confirmed by a study was carried out by the Department of Economics at the University of Dar es Salaam which, among other things revealed: 

Utilization of fuel marking as an anti-adulteration measure and anti-dumping of transit products into the local market, had led to an increase in tax revenue of Tsh502 billion ( about $299.34 million) between 2010 and March, 2014. 

Furthermore, petroleum products taxes increased more sharply the year immediately after introduction of fuel marking (2011/12). The rate of change of taxes from locally consumed petroleum products rose significantly by 24% in 2011/12; a growth rate that exceeded the average growth rate of 11.6% of the three years preceding the introduction of fuel marking. This indicated the effectiveness of fuel marking as a measure to curb fuel adulteration.

Fuel marking as an anti-adulteration measure has led to reduction in reported cases of fuel adulteration whereby the conformity index of retail outlets to petroleum product quality standards rose from 19% in 2007 to 91% in 2013, which is an increase of almost 5 times. 

This has ensured consumption of safe petroleum products by the public as well as providing value for money for petroleum product consumers. Furthermore, reduction in fuel adulteration has improved the environment by reducing automotive exhaust pollution. 

Improved quality of petroleum products as a result of fuel marking has resulted in increased confidence of the public of the quality of petroleum products in all filling stations.  Hence also reducing leather shoe costs (time spent going to filling stations regarded as having good quality petroleum products). The reduced time spent searching for good quality petroleum products means more resources to engage in other economic activities as well as more resources for social investments.

What are the challenges in fighting fuel smuggling and adulteration?

Key challenges in fighting smuggling and adulteration of petroleum products include the following:

Jet A1 is not taxed and has the same quality standard as illuminating kerosene. The product can be used to adulterate other taxed and highly priced petroleum products. It can however be noted that the product cannot be marked, because of the requirements of the ICAO. 

This is a challenge that impedes the full success in the fight against the adulteration menace.

Easy availability of adulterants like ethanol, condensate, Jet A1 is another reason behind fuel adulteration. In Tanzania, condensate (a liquid formed by condensation) is produced along with natural gas at Songo Songo. This product can find its way to the market for adulteration. Likewise, Jet A1 is zero taxed; this product can also be used in adulteration of diesel and petrol.

The manner in which retail petroleum products are distributed also has a bearing on petroleum adulteration. 

For example, having large numbers of small, independent transport trucks operators moving petroleum products from terminals to the point of sale without proper follow-up, creates an environment conducive to adulteration. One effective “market based” approach is the practice in many industrialized countries whereby transportation of petroleum products is being done in bulk, through pipelines and rail wagons.

East African Business Week