The cost of imported goods is set to rise after the government introduced a levy to help finance upgrade of the rail network.
The railway development levy has been put at 1.5 per cent of imported goods, whose value stood at Sh1.37 trillion last year — translating to Sh20.6 billion that importers will pay the State.
“I have proposed amendments to the Customs and Excise Act to introduce a Railway Development Levy of 1.5 per cent on all imported goods,” said the Treasury secretary Henry Rotich.
This sets the stage for commodity price increases, including fuel, food, cars and second-hand clothes, with a potential effect of eroding the purchasing power of most households.
Importers who delay moving their cargo from the Mombasa harbour for more than 21 days will also be penalised in efforts to decongest the port and make it competitive.
“Some importers have turned the port into a storage area thus contributing toward congestion of cargo. To address this undesirable practice, I propose to amend the customs law to introduce Customs warehouse rent,” said Mr Rotich.
The rail levy will be added to the Sh22 billion that Treasury has set aside for construction of a new standard gauge rail track from Mombasa to Malaba that will guarantee faster travel compared to the present track operated by the Rift Valley Railways (RVR).
“This project... when completed in three years’ time, will reduce significantly the cost of freight, thereby saving businesses huge resources,” said the Treasury secretary.
“It will improve turn-round time and reduce significantly the cost of freight from Mombasa to Kisumu, by as much as 79 per cent, from about Sh140,000 to Sh30,000.”
RVR won a 25-year contract to run the 2,352km Kenya-Uganda railway in November 2006 on the cargo business and a five-year contract for the passenger unit, whose tenure was extended by months in 2008.
But the firm has failed to live up to expectations of the Kenyan and Ugandan governments seven years into the concession.
Kenya’s passenger rail services have not recorded any significant improvement. Official statistics show that the total kilometres covered by the operator dropped from 389 million in 2009 to 283 million in 2011 and 221 million last year.
Performance in the cargo business has also trailed that of the Mombasa port, which is expected to be the main source of RVR freight volumes.
Last year, trains hauled about 1.62 million metric tonnes of cargo while the Mombasa port handled 21.9 million metric tonnes. The rest of the freight was handled by trucks, which are expensive and have been blamed for the destruction of roads.