Kipchumba Murkomen reveals plan to increase fuel levy by 39 percent

Transport Cabinet Secretary Kipchumba Murkomen on April 9, 2024.

Photo credit: Wilfred Nyangaresi | Nation Media Group

Motorists will pay more for petrol if Parliament approves a proposal by the Transport Ministry to increase the Fuel Levy Charge from Sh18 to Sh25 per litre to raise cash for road maintenance.

Transport Cabinet Secretary Kipchumba Murkomen has urged the Finance and National Planning Committee of the National Assembly to approve the 39 percent rise, saying the current rates were last reviewed in July 2016 and don’t cover inflation on road construction and maintenance cost over the period.

Mr Murkomen seeks to increase the fuel levy through the Finance Bill, 2024. He appeared before the committee to provide final submissions on the Bill.

The tax, commonly referred to as road maintenance levy fund (RMLF), is collected at the fuel pump and is set at Sh18 per litre of petrol and diesel with Sh3 allocated to annuity fund and the balance to road maintenance, rehabilitation, and development.

“It is concluded that increasing the fuel levy charge from Sh18 per litre to Sh25 per litre yields a revenue outcome, which is consistent with halting the increase in the maintenance backlog,” Mr Murkomen told the MPs.

“When the current fuel levy rate of Sh18 per litre was established in 2016, the pump price of petrol in Nairobi was Sh95. As of May 2024, the pump price is Sh194 while fuel levy remains at Sh18 per litre. This difference illustrates the loss of purchasing power of the fuel levy over time due to inflation” he explained.

He said that, if approved, the review would generate up to Sh115 billion annually for roads upgrade.

The government currently collects Sh83 billion from the levy, but targets to collect an additional Sh32 billion if it rises to Sh25 a litre.

Mr Murkomen said the financing gap for road maintenance over the five years (2023 to 2027) is Sh315 billion against the projected RMLF collections.

This, he said, will likely increase the maintenance backlog over that period that stood at Sh727 billion as of 2022.

The State maintains the country’s road network through the Kenya Roads Board Fund (KRBF), which is mainly financed through the proceeds of the RMLF as well as transit tolls.

“As mentioned earlier in this brief, the quantum of fuel levy per litre was last amended in 2016. It is proposed that consideration now be given to reviewing the current quantum of the fuel levy,” he said.

He told MPs that there are emerging challenges in road maintenance including a gap between maintenance needs and the available resources, which affects the road network of all the three sector agencies.

There is an absence of a mechanism to guarantee the portion of the funds allocated annually to rural roads under the Kenya Rural Roads Authority (Kerra) is used to maintain paved rural roads, the CS said.

“The effect of the above gap between needs and resources is that excessively delayed maintenance is now adversely impacting roads conditions, a pattern that is projected to accelerate unless resolved,” Mr Murkomen said.

“In 2016 when the fuel levy charge was last adjusted, the length of paved roads nationally was 16,600 kilometres. By 2024, the length of paved roads has increased to 25,411 kilometres.”

He said the cost of maintaining paved roads is significantly higher than that of the unpaved.

Mr Murkomen said the road maintenance gap is anticipated to increase further in the near term due to the maintenance backlog that continues to grow.

Baringo North MP Joseph Makilap demanded to know the net effect of increasing the fuel levy by Sh7 per litre on the cost of goods.

Kigumo MP Joseph Munyoro asked the ministry to consider a percentage of fuel levy instead of increasing the amount by Sh7 per litre.

“We have a motor vehicle tax of 2.5 percent. We have an eco-levy on batteries. You now want to increase the fuel levy by Sh7. How are all these levies going to affect the cost of transportation?” David Mboni, the MP for Kitui Rurals, asked.

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