The dropping fuel prices that have eased pressure on households in the last six months may be headed for an abrupt halt as infrastructure ministry digs in for more taxes to finance road projects.
The Kenya Roads Board (KRB) has written to the Treasury, proposing the introduction of a floating tax and the setting of minimum pump prices of Sh80 per litre for diesel and Sh90 per litre for gasoline.
This means that if global crude prices fall further, the oil marketers will continue to charge fuel at the legal minimum prices, deduct their revenues as calculated by Energy Regulatory Commission (ERC) and remit the rest as taxes.
The consumers will therefore not pay the floating tax when prices rise above the minimum (floor) retail prices.
The KRB— which collects and manages Kenya’s road maintenance levy fund (RMLF) — says the proposed floating levy will help clear a backlog of road maintenance costs estimated at Sh400 billion.
“We sent the proposal to the cabinet secretary. It is a quick way to benefit from the low-price regime and clear the backlog of maintenance. Discussions are ongoing,” said Jacob Ruwa, executive director of KRB.
“The floating tax has worked in other countries. The challenge has been its sustainability because it’s always hard to predict prices.” Mr Ruwa said in an interview with the Business Daily.
The proposal is set to create yet another layer of tax on oil products. At the moment, gasoline consumers face fuel levy at the rate of Sh9 per litre and excise duty of Sh19.89 a litre. The levy on diesel stands at Sh8.24 per litre.
KRB has since asked the Treasury to double the fuel levy to raise money for the 10,000km of tarmac roads under the annuity programme.
The consumer also pays Sh0.40 per litre of fuel as petroleum development levy which goes towards a fund known as Petroleum Development Fund. These taxes are on top of 1.5 per cent duty railway development levy imposed on all imports.
The KRB is seeking to exploit the current lower pump prices, pulled down by plunge global crude oil whose price has halved to Thursday’s average of $55.28 per barrel.
Analysts have projected that oil prices are likely to remain low for some time, as oil producing giants including Saudi Arabia have refused to cut back on production to push cost back up.
The January fuel price review gave Kenyans the lowest gas prices in four years, with petrol now retailing at Sh92.88 per litre and Sh83.35 for a litre diesel in Nairobi.
ERC director-general Joe Ng’ang’a intimated that fuel prices for diesel and petrol are likely to drop below the historic Sh80 and Sh90 mark in the next review set for Saturday.
KRB says the proposed floating tax on fuel is part of a multipronged fundraising strategy which also include doubling the fuel levy to Sh18 per litre and floating a Sh50 billion infrastructure bond at the Nairobi bourse.
“My job is to raise money for road maintenance. We are pursuing different strategies,” said Mr Ruwa.
Kenyans used 3.1 billion litres of diesel and petrol in the fiscal year ended June 2014, which saw collections from the fuel levy hit Sh28 billion.
But this falls short of the Sh50 billion needed annually by KRB to develop, rehabilitate and maintain the road network which totals 161,451 kilometres—but only 14,561km is paved.