President William Ruto's plan to extend the Standard Gauge Railway (SGR) from Naivasha to Malaba has received a significant legal boost after the High Court upheld the constitutionality of the Railway Development Levy.
In a ruling delivered on Friday, July 17, Justice Gregory Mutai declared that the levy was lawfully established and remains a valid source of funding for railway infrastructure projects across the country.
The Railway Development Levy is charged at 2 per cent of the value of imported goods and is collected by the Kenya Revenue Authority (KRA) before cargo is cleared. It applies to imports entering Kenya through seaports, airports and land border points.
The levy generates between Ksh36.8 billion and Ksh50 billion annually and was introduced to support the construction, operation and maintenance of the Standard Gauge Railway and other national railway projects aimed at lowering freight transport costs across the region.
Under the Miscellaneous Fees and Levies (Amendment) Act, the government placed the collections into a dedicated Railway Development Levy Fund, ensuring the money is reserved specifically for railway development.
The judgment strengthens the government's efforts to secure financing for major infrastructure projects while easing pressure on public borrowing.
It also allows the government to continue using up to 90 per cent of the fund's projected future revenue as collateral when raising funds for railway projects under the amended law.
The Ruto administration is currently pursuing a 15-year infrastructure bond valued at between Ksh387 billion and Ksh390 billion to finance the Naivasha - Kisumu - Malaba section of the SGR. The project is expected to be completed between June and August 2027.
In addition to the Railway Development Levy, the government plans to use the Air Passenger Service Levy as security under a broader Ksh541 billion multi-levy securitisation programme designed to fund key transport infrastructure projects.
According to Treasury budget estimates, the Railway Development Levy is projected to generate Ksh48.5 billion during the financial year ending June 2027.
However, the court also found that the government's earlier decision to use the levy to finance the Nairobi Commuter Rail project before Parliament amended the law was unconstitutional.
Justice Mutai ordered the government to begin a fresh, transparent and competitive procurement process for the continuation of the Nairobi Commuter Rail works within 90 days, ensuring future spending complies with the law.