Commodity prices to rise on hiked railway levy

THE STAR

Households are staring at a sharp increase in commodity prices on the back of the rise in the Railway Development Levy, amid port congestion at Mombasa which has seen shipping lines opt for surcharges.

The government has started implementing the new RDL which has gone up to two per cent from 1.5 per cent, following the recent signing of the new Tax Laws (Amendment) Bill 2024 by President William Ruto on December 11, with the new levy becoming effective on December 27, 2024.

The amendments were as a result of withdrawal of the Finance Bill, 2024 after a public outcry on the punitive tax proposals that were to be introduced in the current financial year ending June 2025.

The new law amended various provisions in the Income Tax Act, Value Added Tax Act, Excise Duty Act, Miscellaneous Fees and Levies Act and the Tax Procedures Act.

According to Kenya Revenue Authority (KRA), the Railway Development Levy is chargeable on all goods imported into the country for home use.

The RDL was introduced in 2013 and the fees collected were to fund the construction of the Standard Gauge Railway from Mombasa to Kisumu.

In the financial year 2023- 24, the government raised about Sh31.7 billion from RDL against a target of Sh34.7 billion.

With the increase, shippers and traders in the country have warned that the extra costs will be passed to consumers, a move that will have a huge impact as Kenya remains a net importer.

“We had hoped that the RDL would remain at 1.5 per cent. Whereas infrastructure development is vital for economic growth the government must listen to industry concerns over the numerous charges,” the Shippers Council of Eastern Africa (SCEA) chief executive Agayo Ogambi said.

He noted that instead, the government should consider reducing levies and fees, including the Import Declaration Fees (IDF) and corporate tax.

“This will go a long way to spur business expansions and employment creation. With increased taxation, businesses are bound to freeze employment and expansion,” Ogambi said further calling on the government to ensure prudence in expenditure to help bring down the tax regime.

Congestion at the Port of Mombasa has also led shipping lines to consider introducing surcharges, which will further impact commodity prices.

For instance, Mediterranean Shipping Company (MSC) has said due to port congestion at Mombasa generating difficult conditions to operate and increased costs, it will apply a Congestion Surcharge (CGS) for cargo from the Middle East and Indian Subcontinent (India, Pakistan, Sri Lanka, Bangladesh) to Mombasa.

“As from January 13 2025 (gate in date) until further notice, the CGS will be charged at $500/20’ and $500/40’ for all equipment types,” the company said in a notice seen by the Star, which translates to a surcharge of Sh64,650 per container.

The shipping company accounts for 18.9 percent of total container volumes at Mombasa, after Maersk, which controls 28.2 percent of volumes. CMA CGM accounts for about 13.9 per cent of the container volumes handled at the port.

“SCEA opposes the intended increase and calls upon MSC to rescind the decision and which will hurt shippers for no fault of theirs. KPA to come out clear to address the allegation of port congestion,” said Ogambi.

Meanwhile, the increase in RDL is a blow to traders grappling with high international freight costs that came with the Red Sea attacks that disrupted the shipping industry since December 2023.

Shipping lines serving the Port of Mombasa and Dar es Salaam reported freight costs increase to the region, which last year went up by more than 20 per cent, as ships re-route to the Cape of Good Hope (South Africa), before coming up to the East.

They are also avoiding the Suez Canal which is a key route for voyages to Mombasa and the East African coastline, in the wake of continued attacks by Iran-backed Houthi rebels in Yemen, who are targeting ships traveling to Israel and another region.

According to the SCEA, the re-routing of vessels comes with increased transit time, which translates to higher freight charges by shipping lines, and insurance, which has also affected Kenyan exports.