Rail transport budget up Sh7bn on levy increase

Madaraka Express arrives at the Mombasa Terminus in Miritini from Nairobi in July last year. 

The National Treasury has raised funding for rail transport by 21 per cent to Sh38.4 billion, a newly published supplementary budget shows, buoyed by an upward adjustment on the Railway Development Levy (RDL).

Rail transport had initially been allocated Sh31.92 billion for the current fiscal year but the Treasury has in its latest expenditure plan raised the amount by Sh6.53 billion.

“The addition is on account of adjustment of Railway Development Levy,” the Treasury Cabinet Secretary Njuguna Ndung’u said without providing detail.

The RDL is calculated on the customs value of the goods and must be paid by the importer at the time of entering the goods for home use.

RDL was initially charged at 1.5 percent on all goods imported into the country for home use but was raised to 2 percent to increase earnings for the government.

This levy, which has been applied since 2013, was established to finance the construction of the Chinese-built Standard Gauge Railway (SGR) that links Nairobi and the Mombasa port.

The government later amended the purpose of the RDLF, which netted Sh24 billion in the financial year 2020/21, to include funding for the SGR’s operations and maintenance.

“The RDL is now payable on all imports into the country at 2 percent on the customs value of the goods. However, the rate will apply at 1.5 percent for raw materials and intermediate products imported by approved manufacturers and inputs for the construction of houses under the affordable housing scheme approved by the government,” said audit firm PricewaterhouseCoopers (PwC) in an analysis.

The levy has come under heavy scrutiny in recent years because it led to a significant increase in the cost of imported goods especially fuel as traders pass on the levy to consumers.

Treasury officials last year defended the continued charging of the levy when they appeared before lawmakers who mulled dropping RDL on fuel as one of the interventions to reduce the cost of fuel.

The officials however said the levy is critical to meet some of the bills associated with the construction of the railway such as payment of landowners who were displaced by the construction.

“Having funded the major infrastructure that is the SGR Phase 1 and 2A and as the government seeks financing for SGR Phase 2B and 2C to Kisumu and Malaba, the fund will focus on the optimising the operations and maintenance of SGR, funding the complementary infrastructure such as linkages and access to SGR and acquisition of additional assets for effective operationalization of SGR,” said the RDL fund administrator last year.