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Tax options for bridging the gaps in funding road construction budgets
The Nairobi Expressway Mlolongo Toll Station. Motorists had hoped for lower rates to be announced from July 1, 2024 in line with macro-economic changes.
A recent report explained various Exchequer options for closing gaps in budgets for funding road development and maintenance, and this includes public-private partnerships (PPPs), tolls, insurance, and congestion taxes.
Funding roads was always a tough and sensitive task for every government, given new roads and the condition of existing ones are the most visible measures of their performance.
Post-independence, annual road licences for various types and sizes of vehicles were the main source of funding for maintenance.
Bilateral and multilateral debt and grants were used for road infrastructure development. However, in 1980-90s funding from these sources significantly reduced as Kenya was accused of corruption and weak accountability systems.
This is when President Daniel arap Moi’s regime erected toll stations on most major roads across Kenya, but the revenues raised were still insufficient to bridge road budget deficits.
When President Mwai Kibaki came to office in early 2000, he did away with annual road licences and toll stations and replaced them with a single Road Maintenance Levy (RML) to be paid on all fuels.
The levy remains an efficient, effective and equitable method of taxing all road users. For major road development, the Kibaki government turned to China for long-term funding. However, servicing Chinese and other loans has put Kenya in a cash-strapped predicament.
Kenya plans to develop major roads with the PPP funding model, with toll revenues funding the investors. Further, it is understood that the government plans to set up toll stations on existing major roads.
From past experiences, toll stations cause delays, are amenable to revenue leakages, can easily be circumvented using “panya” routes, and can be unfair to local frequent users.
Indications are that the Road Maintenance Levy, which currently stands at Sh25 per litre is insufficient, prompting plans to institute annual road insurance and congestion taxes. Yes, going forward, demands for diesel and petrol will drop as the world shifts to electric vehicles, and this levy will decline correspondingly.
I suggest the government seek an algorithm implemented by the Energy and Petroleum Regulatory Authority (Epra) to increase (or reduce) RML every quarter to reflect shifting fuel sales.
Further, all-electric vehicles should be subjected to an annual road licence to reflect their use of Kenyan roads and forgone RML. In this regard, the government should avoid falling into the “green trap” by climate economic opportunists because Kenya has met its climate obligations by planting millions of trees.
With these recommendations, there may be no need to introduce difficult-to-implement road insurance or congestion taxes.
