The Ministry of Transport has proposed an increase in the Fuel Levy Charge from the current Ksh18 to Ksh25 per litre in the Finance Bill 2024. This new proposal could lead to an increase of Ksh7 per litre in fuel prices.
The objective behind this move is to raise crucial funds for road maintenance, though it is expected to have wider economic implications, potentially driving up commodity prices and electricity costs.
Transport Cabinet Secretary Kipchumba Murkomen addressed the Finance and National Planning Committee of the National Assembly on Tuesday, June 11, highlighting that the current fuel levy rates, which have remained unchanged since July 2016, no longer cover the rising costs of road construction and maintenance due to inflation.
CS Murkomen emphasized the urgency of the proposed adjustment, stating that the current rates have eroded the levy’s purchasing power over time. The Road Maintenance Levy Fund (RMLF) is applied at the fuel pump, currently standing at Ksh18 per litre of petrol and diesel, with Ksh3 allocated to an annuity fund and the remainder directed towards road maintenance, rehabilitation, and development.
Murkomen noted that increasing the fuel levy to Ksh25 per litre could help address the growing maintenance backlog and generate up to Ksh115 billion annually for road improvements, compared to the current Ksh83 billion.
“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,” Murkomen explained.
He also stated that the additional revenue from the levy increase would be crucial in bridging the Ksh315 billion road maintenance financing gap projected over the next five years.
Fuel in Kenya is subject to nine different taxes, including a 16 percent VAT, anti-adulteration levy, excise duty, petroleum development levy, railway development levy, and import declaration fee. This complex tax structure has long been contentious, with critics arguing that the cumulative burden on consumers is excessive.
Adding to the complexity, the Energy and Petroleum Regulatory Authority recently reduced fuel prices by up to Ksh18 in their latest review. Currently, super petrol in Nairobi retails at Ksh193.84, diesel at Ksh180.38, and kerosene at Ksh170.06. With the proposed Ksh7 increase, Kenyans could see the price of super petrol in Nairobi rise to Ksh200 per litre.
