The government has clarified how the changes to the Value Added Tax (VAT) rates will come into play from January, impacting the prices of Fuel and Liquefied Petroleum (LP) Gas. Effective January 1, 2024, the VAT rate will increase from 15% to 18%, bringing Fuel and LP Gas under the 18% tax bracket.

This move marks a departure from the previous status quo, where Fuel and LP Gas were exempt from VAT. The decision aims to enhance revenue streams and align with broader economic goals.

Adding another layer to this fiscal adjustment, the government has simultaneously decided to eliminate the Ports and Airports Development Levy (PAL) previously applicable to Fuel and LP Gas. The current PAL rates for Fuel and LP Gas stand at 7.5% and 2.5%, respectively.

For consumers, these changes translate into tangible shifts in energy costs. If the Cost, Insurance, and Freight (CIF) value of these commodities remains constant, the impact on prices is as follows:

• LP Gas: With an approximate 16% increase, consumers can expect a notable rise in the cost of LP Gas. The transition from no VAT to an 18% rate contributes significantly to this adjustment.

• Fuel: While not as steep as LP Gas, Fuel prices will still witness a considerable uptick of around 12%. The shift from a PAL-inclusive pricing structure to a higher VAT rate contributes to this change.