The Energy and Petroleum Regulatory Authority (Epra) this week effected an increase in the road maintenance levy (RML) to Sh25 a litre of petrol and dieseal in the latest petroleum pricing cycle for July 15 to August 14.
The tax is collected at the fuel pump with its proceeds going into an annuity fund and the balance to road maintenance, rehabilitation, and development. How does the Road Maintenance Levy Fund (RMLF) work?
RMLF is charged per litre of petrol and diesel- consumed in the country to maintain public roads in the country. The fund consists of the proceeds from the levy and the transit tolls levied under the Public Roads Toll Act. Since its inception, the levy has grown progressively from Sh1 for a litre of diesel and Sh1.5 for a litre of petrol in June 1993 to Sh18 a litre of petrol and diesel in June 2024.
What is the legal framework that establishes RMLF?
The fund was created under the Road Maintenance Levy Fund (RMLF) Act of 1993 which provides for Kenya’s road maintenance. In providing a sustainable source of funding for the the road network, the Act imposes the levy on petrol and diesel as well as establishment and administration of the fund in which monies shall be paid.
The road maintenance levy (Imposition of levy) order of 2016, a paper published by the Kenya Roads Board (KRB), shows that RMLF makes up to 98 percent of the Kenya Roads Board Fund (KRBF) which includes interest earned on liquid assets.
RMLF is administered by the Kenya Roads Board (KRB), an agency that was created by the Kenya Roads Board Act of 1999.
All monies accruing to the fund from the levy and transit tolls are paid into two special accounts established by the KRB- the general account and a local authority account.
The KRB Act makes an elaborate framework for the financing of road development and maintenance in the country. The Act mandates KRB to fund, oversee, and coordinate road maintenance, rehabilitation, and development.
How is RMFL disbursed?
The KRBF is distributed among road agencies charged with the maintenance including Kenya National Highways Authority(KeNHA), Kenya Urban Roads Authority(Kura), Kenya Rural Roads Authority(Kerra), Kenya Wildlife Services(KWS), and the county governments.
Has the levy achieved its purpose?
This has been a mixed bag where maintenance of some roads has been successfully undertaken, but this has not been uniform across the country, largely due to the funding requirements compared to the available funds. For example, the government is yet to repair the roads badly damaged by the recent heavy rains exposing motorists to numerous repair costs brought about by breakages, increased travel times, and costs among others.
How much has been previously realised through the levy and what does the government intend to gain with the increase?
The levy raised at least Sh84 billion a year based on the previous rate of Sh18 per liter of petrol and diesel to maintain the country’s road network. With the levy now at Sh25 per litre of petrol and diesel, the government intends to collect at least Sh115 billion per year in RMLF charges. This is, however, against the annual road maintenance requirements of Sh150 billion.
What would be the impact of the RMFL increase on the price of fuel and the national revenue?
In Kenya, the fuel price consists of three main components- the international market price of petroleum products, the freight costs, and other costs which cover fees related to insurance, cargo dues, stock financing, and coastal storage. Epra sets fuel pump prices on the 14th day of every month after incorporating the taxes.
It is anticipated that an increase in the levy of Sh7 will result in a similar increase in the price of fuel. Therefore, increasing the levy to Sh25 per litre of petrol and diesel will result in an increase in price from the current Sh188.84 to Sh195.84 per litre of petrol while the price of diesel will increase from Sh171.60 to Sh178.60. This will earn the government approximately Sh115 billion in revenue.
Why increase the levy?
An increase in road network, weakening shilling against major global currencies.
Kenya’s road network stood at 239,122 kilometres at the end of last year, up from 161,451 kilometres in 2016 while the shilling has weakened by 25 percent to 28 percent against the dollar, euro, and pound, meaning that imports including those for building and repairing roads have become costlier.
High pump prices have also directly increased the cost of building and repairing of the roads.
What is the impact of rise in the levy on the operating costs of vehicles?
The paper by the Kenya Roads Board (KRB) shows that a 100 percent increase in fuel levy will result in a 3.7 percent increase in the fuel price. Based on industry averages, truckers will see their vehicle operating costs increase by between at least 0.6 percent and 0.9 percent per year. This increase should however be offset by improved road conditions.
How has the RMLF rate shifted in the last few years?
The last review of the levy was done in July 2016, when the rate was increased from Sh12 to Sh18 per litre, a 50 percent increase. Effective July 2016, the rate has remained constant at Sh18 per litre and annual collections have matured at Sh84 billion.
KRB justified the increase by saying that due to inflation, the current annual RMLF collections are equivalent to Sh52 billion in the 2016 prices. In order to maintain the real value of RMLF at the 2016 prices, KRB says that annual collections in the financial year 2023/24 ought to be at least Sh122 billion.
