Fresh fuel levy hike to further strain Kenya’s economy

June 19, 2024June 19, 2024 Newsroom

For the first time since 2017, motorists in Kenya are set to shoulder Kes9 more per litre of fuel once the Finance Bill 2024 is passed into law. The Bill, which has drawn the wrath of Kenyans, up in arms over high taxation, proposes an increase in road maintenance levy. This increase will have negative consequences on motorists as the already high prices of fuel will go up.

This levy is currently set at Kes18 per liter of petrol and diesel and has remained unchanged since 2017 despite the continuous rise in fuel prices.

The increased levy, which would bring the total to Kes25, is aimed at generating additional funds for the maintenance and repair of Kenya’s road network.

House Finance Committee led by Kimani Kuria argues that the existing levy is insufficient to cover the escalating costs associated with road repairs and maintenance.

Kimani noted that factors such as inflation, rising fuel prices, and recent adverse weather conditions, including flooding, have further strained the budget allocated for road infrastructure.

These natural events have damaged roads, making some impassable and necessitating urgent and extensive repairs.

However, the increase in the road maintenance levy is expected to have a direct and immediate impact on motorists, who are already grappling with the high cost of living.

Increasing the levy means that fuel prices at the pump will rise, adding to the financial burden of Kenyans who rely on their vehicles for daily transportation.

The looming rise in pump prices comes at a time when the purchasing power of many Kenyans is declining, as highlighted in a post budget analysis by audit firm Deloitte.

Rise in cost of goods and serives

Doris Gichuru, a partner for tax and legal at Deloitte, notes that the measures proposed in the Finance Bill 2024 will likely lead to a reduction in private consumption.

She explains that as fuel prices rise, the cost of goods and services will also increase, given that transportation costs are a huge component of overall production and distribution expenses.

This, in turn, will exert additional pressure on household budgets, forcing Kenyans to prioritize essential expenditures over discretionally spending.

The ripple effects of higher fuel prices will extend beyond motorists. The services sector, which relies heavily on transportation, is expected to suffer the most.

Businesses that depend on road transport for the delivery of goods and services will face increased operational costs, potentially leading to higher prices for consumers. This could slow down economic activity as consumer spending contracts.

Moreover, the proposed levy increases come at a time when the overall budget for the State Department of Transport may decrease, despite the rise in local revenues intended for road projects.

Transport CS Kipchumba Murkomen has been advocating for the levy increase, arguing that the current rate does not reflect the actual costs of repairing and rebuilding roads, warning that without this increase, Kenya’s road network will suffer neglect, eroding economic productivity.

“Kenyans currently spend more than they earn so if we continue with the finance bill there is going to be an increased pressure and then people will only spend on what is essential,” said Doris Gichuru.