The Ministry of Transport has proposed a significant adjustment to the Fuel Levy Charge, aiming to increase it from the current Ksh18 to Ksh25 per litre, as outlined in the Finance Bill 2024. This proposed increment of Ksh7 per litre is intended to generate crucial funds for road maintenance and development but is expected to have widespread economic implications.
Transport Cabinet Secretary Kipchumba Murkomen, in a presentation to the Finance and National Planning Committee of the National Assembly on Tuesday, June 11, underscored the necessity of this adjustment. He highlighted that the current fuel levy rates, unchanged since July 2016, no longer suffice to cover the escalating costs of road construction and maintenance, largely due to inflation.
Murkomen stressed that the Fuel Levy Charge has not kept pace with the rising costs associated with road infrastructure. “When the fuel levy was last set at Ksh18 per litre in 2016, the pump price of petrol in Nairobi was Ksh95. As of May 2024, the price has soared to Ksh194, while the levy remains unchanged. This stark contrast illustrates the diminishing value of the fuel levy due to inflation,” he explained.
The tax, known as the Road Maintenance Levy Fund (RMLF), is currently applied at Ksh18 per litre of petrol and diesel. Out of this, Ksh3 is allocated to an annuity fund, with the remaining portion directed towards road maintenance, rehabilitation, and development. The proposed increase to Ksh25 per litre is expected to address the growing maintenance backlog and is projected to generate up to Ksh115 billion annually, a significant rise from the current Ksh83 billion.
While the additional revenue from the levy increase is seen as essential for bridging the Ksh315 billion road maintenance financing gap projected over the next five years, the move is likely to have a ripple effect across the economy. Higher fuel prices could lead to increased costs for commodities and electricity, affecting households and businesses alike.
Fuel in Kenya is subject to nine different taxes, including a 16 percent Value Added Tax (VAT). This complex tax structure, combined with the proposed fuel levy increase, may further strain the financial burden on consume.
The proposed adjustment to the Fuel Levy Charge reflects the Ministry of Transport’s response to inflation and the urgent need for enhanced road maintenance funding. However, the broader economic consequences of this proposal cannot be overlooked, as higher fuel prices could contribute to an overall increase in living costs. The Finance Bill 2024, which includes this proposal, will be closely scrutinized as stakeholders weigh the benefits of improved infrastructure against the potential economic challenges.
