18 February 2013

Kenya to Re-Introduce Highway Tax

Nairobi — Driving in Kenya will prove a costly affair after the government finalized on plans to revive the road levies of the 1990s.

The government argues that the funds will be used in the repair of the roads though the move is vehemently opposed by a section of Kenyans who claim it amount to multiple taxation.

Toll charges were a common feature on Kenyan roads at the height of retired President Moi's regime. Parliament however replaced the toll with Roads Maintenance Levy Fund collected as Fuel Levy charged at the pump.

The move is one of a raft of unpopular tax related legislations passed under outgoing Finance Minister Njeru Githae's tenure. If implemented, the pieces of legislation will see the Kenyan middle-class fork out more in taxes. Just recently, the Minister imposed a 10 per cent tax on mobile money transfer services. This move has seen players in the sector increase transaction changes for services such as M-Pesa, Airtel Money, yuCash and Orange Money.

The Minister made the announcement at a meeting with stakeholders in the energy sector and the World Bank in Nairobi. He said the new tax was in line with the government's commitment to privatizing major infrastructure projects in the country.

The ripple effect of this move is likely to be a drop in fuel prices as what was initially charged at pump stations will be transferred to the respective toll stations on the affected roads across the country.

"We believe the toll levy will help the government in enhancing private public partnerships to finance the maintenance of major highways and urban roads. This has always proved a challenge but we are optimistic that the new measures will address the same," said Githae.

The Kenyan Treasury has embarked on desperate taxation measures to plug a huge budget deficit especially affecting infrastructure projects in the country. In June last year, Kenya unveiled a budget of over $11.7 billion which left tongues wagging on where exactly the money would come from in the wake of a government weaning programme aimed at ridding overreliance on donor funds.

"The government should guard against overtaxing Kenyans in its desperate attempts to finance the ambitious budget. We have in the recent times witnessed illegal passage of tax elements that are completely out of order," said Renson Muyonga, an asset manager at Virgin Investments in Nairobi.

The government has in the recent past courted the private sector on the importance of partnerships in infrastructure projects in the area of roads, energy, and water among others. This is mostly along the lines of Build Operate Transfer (BOT).

This has seen the passage of the Public Private Partnership Act that will oversee such business ventures with the private sector.

"We have already earmarked around 15 key projects that will be implemented under the PPP model. Most of them are under the country's Vision 2030 development blueprint," said the Minister.

The World Bank has already pointed out that for Kenya to realize its infrastructural projects, it needs to double annual budget allocation to the sector from the current $1.6 billion to $4.1. This is likely to prove a tricky affair as the government tries to balance a bloated recurrently expenditure.

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