Kenya retains import tax to fund regional rail network

Kenya has retained the railway development tax in its budget plan for the next four years, indicating its continued gamble on the Mombasa-Malaba route as a major trade highway for years to come.

The National Treasury projects that the railway development levy (RDL), which generated Sh18.2 billion in the financial year to June 30, will grow gradually over the period, netting Sh31.8 billion in 2020/21.

The RDL is collected at the rate of 1.5 per cent on imports from non-East African Community states. When Kenya first introduced the RDL in its 2013/2014 budget, the target was to raise Sh10 billion annually for the Mombasa-Nairobi -standard gauge railway (SGR).

“We will continue to implement the previously announced tax measures,” Treasury secretary Henry Rotich says in the Budget Review and Outlook Paper published last week.

“The government’s fiscal stance takes account of risks associated with the macroeconomic outlook, budget execution and the projected resource envelope.”

Kenya has grappled with widening gap between imports and exports over the years. Last year, the import bill hit Sh1.4 trillion against a total export revenue of Sh578 billion.

The Treasury seeks to tap into the huge import bill to upgrade the country’s railway network.

Through the four years, the Treasury also expects the import duty to grow from Sh89.94 billion in the financial year ended June 30 to Sh150 billion by 2020/21. Despite the exit of Rift Valley Railways, which has been managing the Mombasa –Kampala train service, Kenya still sees the route as a high-potential trade corridor.

Most of the 1 million containers that get cleared at the Mombasa port every year are evacuated through the Mombasa-Malaba corridor (Northern Corridor).

Kenya plans to extend its SGR line, which has since connected Nairobi and Mombasa, to Malaba via Naivasha and Kisumu at a budget of more than Sh1 trillion.

The RDL is particularly being retained to help bridge the 10 per cent SGR financing gap after the Chinese Exim Bank pledged to take care of the rest of the cost.

The cargo is usually delivered to Kenya’s industrial bases as well as to the landlocked states like Uganda Rwanda, South Sudan, Burundi and the Democratic Republic of Congo (DRC). The alternative import route especially for Uganda, Rwanda and Burundi, is Dar Port through Tanzania’s Central Corridor.

A recent survey by Uganda’s Works and Transport ministry seen by the Business Daily shows Northern Corridor remains the most preferred route because it is short, has less administrative restrictions and does not have to pass on Lake Victoria water.

The ministry says unlike Malaba-Kampala SGR which will enable up to 40 trains to transport 8,460 containers per day, the route through Tanzania requires 40 days to evacuate the same amount of cargo through Lake Victoria by five wagon ferries.

The report maintains that Uganda is already located at the heart of the East and Central Africa’s logistics chain and can evacuate its products through Djibouti, Mombasa and Dar Es Salaam ports.

“However, due to many factors, the port of Mombasa in Kenya and the port of Dar As Salaam in Tanzania are anchor points that are crucial for the domestic, regional, and international trade by the eastern African countries,” states the report.