Pain for motorists as agency pushes to double roads levy

The Kenya Roads Board (KRB) has renewed its push to have the Treasury double the petroleum levy, a wish that if granted could see the cost of fuel rise steeply despite the ongoing fall in global oil prices.

The agency wants the levy, which is charged at Sh9 per litre of petrol or diesel, raised to Sh18 reviving a demand that the Treasury declined to include in this year’s Budget.

“Discussions with the Treasury to increase the levy are ongoing,” KRB executive director Jacob Ruwa said on Wednesday during a forum to discuss the Medium-Term Expenditure Framework (MTEF) in Nairobi.

He said KRB had sought the Treasury’s approval in the past one-and-a-half years and was expecting a positive response this financial year.

KRB argues that the current rate, set in 2006, is no longer feasible given the rise in cost of construction materials, labour and transport as well as increase in the length of roads that now require maintenance.

The push to double the fuel levy also comes at a time when the government has announced plans to construct 10,000km of roads by 2017.

KRB, which collects the duty and manages the Road Maintenance Levy Fund (RMLF), is now betting on the fresh round of talks with the Treasury to increase the charges.

It reckons that increased cash flows would help ease pressure on the fund and ensure rehabilitation of a wider network of roads that have long been neglected.

The board collected Sh28 billion in the last fiscal year, which is short of the Sh47 billion required for roads maintenance annually.

A doubling of the fees would rake in Sh54 billion or more than the Sh47 billion target for roads maintenance – meaning it could finance the construction of new roads.

READ: State to build 3,000km of roads in annuity plan

Any increase in the levy could spoil the party for motorists who have enjoyed a steady easing in fuel prices in tandem with the decline in global crude prices.

A higher fuel levy could also renew inflationary pressure on households given the key role that transport plays in the pricing of goods and services in all sectors of the economy.

If adopted at current pricing levels, a litre of diesel and petrol would cost about 10 per cent more to retail at Sh103.52 and Sh115.8 respectively in Nairobi.

Kerosene, mostly used by low-income households for cooking and lighting, does not attract the levy.

Higher diesel prices could push up the cost of producing and distributing goods given that it is the main fuel that is used to power machinery in the agricultural sector, which contributes almost a quarter of Kenya’s gross domestic product (GDP).

The resulting higher food prices would ultimately push up the rate of inflation.

Kenya’s inflation eased to 6.09 per cent last month from a high of 8.36 per cent in August, helped by falling electricity, food and fuel prices.

READ: Falling fuel, power prices cut inflation to 15-month low

KRB conducts routine roads maintenance every three years for gravel roads and between five and eight years for tarmacked roads.

But a cash shortfall has limited the board’s service to only 40 per cent of the classified road network, totalling 90,000 km, said Mr Ruwa.
He said majority of roads in the capital Nairobi have remained unrepaired outside the timelines.

Transport principal secretary Nduva Muli is among top government officials backing the fuel levy increase on grounds that it has remained unchanged despite the rising cost of living.

“The fuel levy has remained unchanged for eight years despite rising inflation, which has diminished its impact on road maintenance,” the PS told the MTEF forum.

The MTEF forms the basis for preparing the Budget every year.

The roads levy was introduced in 2003 at the rate of Sh5.80 per litre before rising 55.1 per cent to Sh9 per litre in 2006. Fuel remains one of the most taxed commodities in Kenya, attracting multiple charges such as road maintenance levy, excise duty and railway development levy.

Kenyans also pay Sh0.40 per litre of fuel as petroleum development levy, which goes towards a fund known as Petroleum Development Fund. Excise duty on fuel is taxed at the rate of Sh10.31 per litre.

Marketers pay the 1.5 per cent duty imposed on all imports to raise funds for building a new standard gauge rail track from Mombasa to Malaba — a cost that is ultimately passed on to the consumers.

The board said that the additional funding would help clear the maintenance estimated at Sh400 billion which is attributed to the fuel levy freeze.