Every litre of petrol sold in Kenya reveals something important about the country's fiscal model.
Under the Energy and Petroleum Regulatory Authority’s (EPRA) April 2026 pricing schedule, motorists in Nairobi pay more than double the import landing cost of fuel.
Much of that difference comes from taxes and levies, reflecting a long-standing reliance on fuel consumption as a source of government revenue. The challenge for policymakers is whether this model can remain sustainable in an economy seeking long-term growth and industrialisation.
That share has been rising, EPRA pricing shows the tax burden on petrol rose from 40.1% in June 2023, to approximately 45.8% by April 2025, driven largely by an increase in the Road Maintenance Levy from Sh18 to Sh 25 per litre.
The levy alone collected a record Sh119 billion in 2025. Then the government subsequently securitised a portion of future collections under the Kenya Roads Bond Program, raising approximately Sh 104 billion to finance immediate infrastructure needs. While the bond programme provided short-term financing, it did not address the underlying structural challenges of Kenya's revenue model.
This trajectory is not unique to Kenya. Governments across Sub-Saharan Africa keep returning to the pump because fuel offers what many other revenue sources do not: inelastic demand, centrally administered collections and cash flows that are immediate and predictable. When public finances tighten, the fiscal strategy often leads directly to the pump.
According to Kenya National Bureau of Statistics (KNBS), Kenya’s fuel import bill stood at approximately Sh570.4 billion in 2025, accounting for roughly 20-23% of imports. Every time global fuel prices rise, the bill rises too, consuming foreign exchange, widening the trade deficit, increasing inflation and exerting pressure on the shilling.
The question for policymakers, therefore, is not merely how to rationalise fuel levies, but how to build an economy in which fuel taxation becomes a shrinking share of a much broader productive tax base. A narrow tax base, not just a high tax rate. The intricate fuel tax architecture in Kenya comprising Value Added Tax (VAT), excise duty, the
Road Maintenance Levy, and various other charges like the Railway Development and Merchant Shipping levies, and an anti-adulteration levy for Kerosine. These highlight a systemic fiscal reliance on consumption. This reflects a broader pattern of revenue systems weighted towards imports and consumption rather than domestic production.
Renewable energy as a fiscal strategy
According to the KNBS 2026 Economic Survey, manufacturing contributed only 7.1% of Kenya’s GDP in 2025, down slightly from 7.3% in 2024. East Asia’s industrial economies that built sustainable fiscal bases sustained manufacturing shares of 20-30% of GDP through their growth phases. Kenya is nowhere close, and high energy costs are among the primary reasons.
According to the Kenya Association of Manufacturers, electricity costs account for 30-40% of production costs for some Kenyan manufacturers, significantly above levels in competing industrial economies.
This is where renewable energy becomes economically transformative. Kenya already operates one of the world’s cleanest electricity grids: approximately 90% of generation comes from renewable energy sources, with geothermal alone contributing nearly half of total generation according to EPRA.
By lowering and stabilising energy costs, expanded renewable deployment can reduce manufacturer’s dependence on diesel backup generation, strengthen economic competitiveness and expand productive economic activity across sectors that generate revenues through Value Added Tax, Pay as You Earn (PAYE), corporate taxes and export earnings. This broadens the tax base and reduces the government’s structural reliance on fuel revenues.
At a time when global manufacturing competitiveness is increasingly shaped by energy security, electricity prices and carbon reduction, this is a structural competitive advantage that Kenya is yet to exploit.
The International Renewable Energy Agency (IRENA) and the African Development Bank (AfDB) estimate that a coordinated energy transition framework could grow Africa’s GDP by approximately 6.4% by 2050, up to 8 million economy-wide jobs and improve living standards by over 25%.
The transport sector illustrates the opportunity more concretely.Discussions around electric mobility often focus on emissions reductions and fuel savings, but equally important, is its potential to stimulate domestic industrial development through vehicle assembly, battery supply chains, charging infrastructure and associated services.
The pace of adoption already signals the scale already underway: according to Kenya Power’s E-mobility Sales Growth Analysis Report, e-mobility power consumption grew by 113% from 13,500 kWh in July 2023 to over 1.5 million kWh in April 2026, generating Sh382 million in electricity sales revenues for Kenya Power over the same period. Every shilling not spent importing fuel is a shilling available for productive investment.
The opportunity multiplies under the Africa Continental Free Trade Area (AfCFTA) , a market of more than 1.4 billion people with a combined GDP exceeding US$ 3 trillion. Countries that succeed in lowering industrial energy costs will be better positioned to attract the manufacturing investment and value-chain development that AfCFTA is expected to stimulate.
As the European Union’s Carbon Border Adjustment Mechanism (CBAM), begins to reshape global trade flows, low-carbon production will increasingly command premium market access. Kenya is already positioned to capitalize on this if it invests in attracting industrial production to do so.
None of this diminishes the urgency of fuel levy reform. Revenues collected for specific public purposes must be transparently managed, and the securitisation of future revenues cannot substitute for deeper structural reform. But relief at the pump is, at best, a holding position. The more consequential question is what Kenya builds in its place, and renewable energy, and industrial competitiveness and the value chains they can unlock offer a credible answer. The opportunity is larger than the energy transition itself: it is the chance to build a more diversified, competitive and resilient economy.
Winnierose Kosgei is a Fellow and Enzi Ijayo Africa Initiative and Fiscal Policy Expert
