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Kenya: Affordable Housing Bill

29 December 2023
– 6 Minute Read
| Tax

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Overview

  • The Kenyan Affordable Housing Bill, 2023 (Bill) has been tabled before the National Assembly. The Bill comes against the backdrop of the High Court decision on the validity of the Affordable Housing Levy (Levy) provided for in the Finance Act, rendered on 28 November 2023.
  • In its decision, the Court declared the Levy unconstitutional. However, despite finding the Levy unconstitutional, the Court granted a stay of its judgment and allowed the Government to continue collecting the Levy until 10 January 2024.
  • This article analyses highlights of the Bill in further detail.

The Affordable Housing Bill, 2023 (the Bill) has been tabled before the National Assembly. The Bill comes against the backdrop of the High Court decision on the validity of the Affordable Housing Levy (the Levy) provided for in the Finance Act 2023, rendered on 28 November 2023. In its decision, the court declared the Levy unconstitutional. However, despite finding the Levy unconstitutional, the court granted a stay of its judgment and allowed the government to continue collecting the Levy until 10 January 2024.

The Bill sets out its key objects as to give effect to the constitutional right to accessible and adequate housing, impose a levy to facilitate provision of affordable housing and provide a framework for implementation of the affordable housing programmes. Overall, the Bill seeks to remedy the irregularities raised by the High Court in declaring the Levy unconstitutional, by establishing a comprehensive legal framework for the imposition of the Levy. The Bill proposes to make provisions for the following:

  • the establishment of the Levy to be imposed on the gross salary of employees and on gross income of unemployed persons. For employed persons, the Levy is 1.5% of the employee’s gross salary with a matching contribution from the employer. The employer has the obligation to deduct and remit the levy by the ninth (9th) working day of the month following that in which payment is due. The due date for remitting the levy is likely to be open to wide interpretation since every organization has the leeway to define its working days and this may give employers more time to remit the levy;
  • the designation of the Commissioner General of the Kenya Revenue Authority (KRA) or any other person appointed by the Cabinet Secretary, the National Treasury as the collector of the Levy;
  • the establishment of the Affordable Housing Fund into which the Levy will be paid;
  • the establishment of a legislative framework for the eligibility, criteria and application procedure for an affordable housing unit; and
  • the repeal of sections 31B and 31C of the Employment Act, 2007 which currently provide for the payment of the Levy.

Some of the highlights from the Bill are analysed in further detail below.

No. Proposal Our Comments
1.      

The Bill proposes to impose the Levy at a rate of 1.5 percent of the gross salary of each employee. The employer is required to match the employee’s contribution. Employers will be required to deduct the employee’s monthly contribution from the employee’s salary and remit both the employer and the employee’s contributions to the designated collector.

Additionally, the Bill proposes to impose the Levy on unemployed persons at a rate of 1.5 percent of the gross income of such persons.

The Bill also empowers the Cabinet Secretary (CS) responsible for the National Treasury to exempt any income or class of income or any person or class of persons from the Levy.

The imposition of the Levy on unemployed persons is intended to promote the fair sharing of the tax burden among all Kenyans and to address concerns raised by the High Court on the discriminatory nature of imposing the Levy on employed persons only. In its decision, the High Court faulted the government for imposing the Levy on employed persons only and held that the selective taxation was discriminatory.

However, it is still unclear how the government intends to collect the Levy from unemployed persons every month due to the challenges that riddle collection of taxes and levies from the informal sector. Should the government fail to develop an effective system of ensuring persons in the formal and informal sector share the tax burden equally, it may subject the Levy to future scrutiny.

2.      

The Bill designates either, the Commissioner General of the KRA, or any other person appointed by the CS responsible for the National Treasury, as the collector of the Levy.

The Levy should be paid to the collector by the ninth (9th) working day after the end of the month in which the gross salary was due or gross income was received or accrued. Any default on payment attracts a penalty of three percent (3%) of the unpaid amount payable for each month that it remains unpaid.

The appointment of a designated collector remediates concerns raised by the High Court which found that the KRA was initially not properly authorised to collect the Levy.

In its decision, the court faulted the purported appointment of KRA as the collector of the Levy by the CS for the Ministry of Lands, Public Works, Housing and Urban Development and held that only the CS in charge of Finance could appoint the receivers of national revenue.

3.      

The Bill establishes the Affordable Housing Fund into which the Levy will be paid. The purpose of the fund is to provide funds for the development of affordable housing and associated social and physical infrastructure. The Bill also establishes the Affordable Housing Board whose purpose is to oversee the development of affordable housing and manage the Affordable Housing Fund.

The Board shall be composed of:

(a)   a non-executive chairperson appointed by the President;

(b)   the Principal Secretaries to both the National Treasury and the State Department responsible for matters related to affordable housing or their designated representatives;

(c)   three other persons appointed by the cabinet secretary responsible for matters related to affordable housing. The three persons shall be nominees of the Council of County Governors (COG), the Central Organization of Trade Union (COTU) and the Federation of Kenya Employers (FKE) his designated representative;

(d)   three persons, not being public officers appointed by the cabinet secretary and possessing qualifications in the bult environment, finance and law; and

(e)   the Chief Executive Officer who shall have no right to vote at a meeting of the Board.

This proposal addresses the issues raised by the High Court on the lack of a legal framework on how the Levy would be administered once collected.
4.       The Bill establishes a framework for the criteria and application procedure for an affordable housing unit. The Bill proposes three (3) categories of housing units; a social housing unit for persons whose monthly income is below KES 20,000, an affordable housing unit for persons with income of between KES 20,000 and KES 149,000 and an affordable market housing unit for persons with income of over KES 149,000. The Bill also allows persons who meet the eligibility criteria to make an application to the relevant agency for allocation of an affordable housing unit or for a loan towards the purchase of a unit. This proposal is intended to address the issues raised by the High Court which faulted the government for imposing the Levy without establishing a corresponding legal mechanism on how affordable housing will be actualised.