Kenya's railway levy to rise by 30pc; but where does the money go?

Wednesday June 26 2019

Standard gauge railway train.

The Railway Development Levy is meant to fund the standard gauge railway yet Kenya's Treasury is using ordinary revenues for the same. PHOTO | FILE | NATION MEDIA GROUP 

NJIRAINI MUCHIRA
By NJIRAINI MUCHIRA
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Kenya’s National Treasury aims to grow revenue from a levy whose collections and expenditure remain a mystery, even to the Auditor General.

The management and use of the Railway Development Levy Fund (RDL), which was launched in 2013 and is charged at 1.5 per cent on all imported finished goods to fund the construction and operations of the standard gauge railway, is shrouded in secrecy, never mind that currently, the Treasury is using ordinary revenues to do the same job.

Kenya Revenue Authority, National Treasury, Ministry of Transport and Kenya Railways remain tight-lipped on the amount collected over the years and how the funds are spent.

“It is not known how revenue from the RDL is administered and there is a need for clarity on how much is collected annually and how the amount is spent,” said Agayo Ogambi, Shippers Council of East Africa head of advocacy.

ACCOUNTING

Conservative estimates show that since 2013, the RDL has generated a staggering $920 million based on the rate of growth in the value of imports, which increased from $13.2 billion in 2012 to $17 billion last year according to Kenya National Bureau of Statistics data.

However, the utilisation of the fund has remained opaque, with even Auditor-General Edward Ouko being kept in the dark.

“There were no material issues noted during the audit of the financial statements,” said an unqualified opinion by Mr Ouko on the RDL in a report on the financial statements for the National Government for 2016/17 financial year.

This meant the Office of the Auditor General was not furnished with financial statements on the operations of the fund to facilitate its auditing and enable him to give a qualified opinion.

In the preceding years, Mr Ouko reported huge variances between the fund’s statement of receipts and payments, some of which were payments for consultancy services for the SGR and others for work-in-progress.

“The statement of receipts and payments for the year ended June 30, 2015 excludes total proceeds (receipts) of RDL but has only disclosed exchequer releases by the National Treasury amounting to $18.6 million,” said Mr Ouko in the 2014/15 report.

He added that the fund’s administrator had breached the law because the total receipts were understated while levies collected for the year under review were undisclosed.

And now the National Treasury Cabinet Secretary Henry Rotich has announced plans to increase the levy to two per cent in proposals contained in the 2019/20 budget statement.

This time round, the government wants to open the fund to scrutiny with the proposed Railways Bill, 2019 that defines the purpose of the fund, its administration and oversight mechanism under an advisory committee that will comprise the principal secretaries of the National Treasury, Transport and Infrastructure together with the KR managing director and the Attorney General.

INCREASE LEVY

Though the Kenya Railways declined to comment on the matter, the proposed Bill states that the expenditure of the fund “shall be on the basis of, and limited to, the annual work programmes and cost estimates that shall be submitted to the advisory committee for approval before the beginning of the financial year to which they relate.”

It adds that all receipts, savings and accruals of the fund and the balance of the fund at the close of each financial year will be retained for the purpose for which the fund is established, which is to provide funds for the construction and maintenance of the railway network.

In the 2019/20 financial year budget, the National Treasury has proposed to raise the levy to two per cent to cushion manufacturers from the unprecedented onslaught from imports. Mr Rotich said the decision to increase the levy is intended to protect local manufacturers and facilitate the growth of the sector, which forms part of the Big Four Agenda.

“Investment in manufacturing sector is key in transforming Kenya into a middle income economy,” he said.

He added that under the Big Four plan, the goal is to increase manufacturer’s contribution to the gross domestic product to 15 per cent by 2022, create jobs annually, increase foreign direct investment and improve ease of doing business.

Despite turning to policy measures to spur local production, Kenya remains a net importer of goods, a signal that the Treasury anticipates a huge rise in RDL revenue.

According to the Economic Survey 2019, the value of Kenya’s imports in 2018 rose by two per cent from $16.6 billion to $17 billion.

At 1.5 per cent rate, it shows the RDL generated $255 million in revenue in 2018. Assuming that imports maintain a flat growth rate in 2019, the levy is anticipated to generate $340 million this year after the levy was increased to two per cent.

According to Mr Ogambi, proper utilisation of the fund particularly in the areas of railway infrastructure maintenance, is critical to ensuring the SGR does not go down the route of the metre gauge railway whose undoing was lack of maintenance.

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