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Housing, sugar levies put in T-bills trigger concerns
Analysts said that by investing its tax receipts in its own issued debt or Treasury papers, the government is effectively paying itself for money it already owns—pointing to disjointed revenue and project implementation plans.
State agencies and departments are increasingly investing surplus funds in government securities, raising concerns about the absorption of billions of shillings in funds meant to support key programmes, such as affordable housing and sugar factory upgrades.
In June, the State Department for Housing and Development revealed that the government had earned Sh4.2 billion interest income from billions of shillings in housing levy collections invested in Treasury bills.
The State Department further revealed it had Sh30.3 billion in unspent collections from the levy, underlining the low absorption rate of funds meant to build cheaper homes for low and middle-income households.
Last week, the government announced plans to invest idle collections from the re-introduced Sugar Development Levy (SDL) in Treasury bills, bonds, and call deposit accounts, signalling low expectations on the absorption rate of the funds meant to support key programmes, including factory upgrades, infrastructure maintenance, research, and credit to cane growers.
Analysts said that by investing its tax receipts in its own issued debt or Treasury papers, the government is effectively paying itself for money it already owns—pointing to disjointed revenue and project implementation plans.
“What that tells me is that you have a fund that you are not able to deploy fully,” said Robert Waruiru, a partner at Ichiban Tax and Business Advisory.
“If you are not ready to deploy the funds fully, then perhaps you should not be collecting the taxes. The full deployment of collections would offer a better return from an economic perspective, including the creation of jobs and the demand for supplies such as window frames and steel bars.”
Earlier in May, the government disclosed that it had invested Sh20 billion collected from the affordable housing levy in Treasury bills and bonds- an indication that the State was collecting the levy at a faster pace than it could deploy in the construction of houses.
Housing Principal Secretary Charles Hinga said at the time that the transfer of funds to Treasury bills had been occasioned by a lengthy legal hitch that had declared the housing levy discriminatory.
“The board can only invest the money in Treasury bills because it is not an implementing agency. The Act does not provide an avenue for the board to spend the money,” he said at the time.
For its part, the Kenya Sugar Board (KSB), which administers SDL collections under a sugar development fund (SDF), said that funds that are not required for immediate utilisation would be invested in financial instruments giving the best possible returns.
SDL was reintroduced starting July 1, 2025, at a time when the inflows of the commodity are expected to rise this year as sugar millers in Western Kenya close their doors on the low supply of mature cane, indicating a potential rise in sugar imports.
The levy is charged on both imported and locally produced sugar. Every local miller will be required to pay four percent of the ex-factory price of the produce by the tenth day of the month immediately following the month when the sugar is manufactured.
SDL is also payable at four percent on the cost, insurance, and freight value of each consignment of imported sugar falling under the East African Community Common External Tariff.
The housing levy is meanwhile set at 1.5 percent of the gross employees’ salaries and is matched by employers.
It has been controversial for eroding the disposable incomes of Kenyans, more so, low-income workers, and has resulted in calls for its scrapping, including from the World Bank.
In June, Treasury Cabinet Secretary John Mbadi revealed that the government was considering restructuring the levy in response to the growing concerns of salaried workers.
According to Abraham Rugo, the executive director for the International Budget Partnership (IBP), while other governments have borrowed from their special purpose funds, the operations of the funds are usually well defined, including the accrued benefits from investing surplus cash.
“For all these funds, we have not seen a policy framework on the purpose and goal of some of these funds,” he said.
“All we have seen is the creation of funds to address various issues, be it housing or health. We have also seen the revamp of existing funds such as NHIF [National Hospital Insurance Fund],” Dr Rugo added.
The employers’ umbrella organisation, the Federation of Kenya Employers (FKE), has recommended the reduction of the housing levy rate from the current 1.5 percent to 0.5 percent.
The World Bank earlier recommended that Kenya exempt workers earning less than Sh32,333 a month from the housing tax and the Social Health Insurance Fund (SHIF) to boost their disposable incomes.
The multilateral lender termed the levies as unpopular despite the State backing the deductions to deliver affordable housing and universal health coverage.
Despite billions of shillings in collections, the affordable housing programme has faced teething problems, including project delays and missed targets.
The Affordable Housing Board has only recently lined up an audit of the scheme in which independent consultants are expected to review its impact on employment, manufacturing, and the informal sector.
The programme has faced problems, including budget cuts and late delivery by contractors, hurting the realisation of President Ruto’s much-touted goal for jobs and improved conditions for millions of Kenyans.
“These are legacy projects. It is all well and good to fund them, but if you are not ready to fully deploy, then why should you create these funds?” Mr Waruiru posed.
The Treasury expects housing levy collections to rise to Sh95.84 billion in the current financial year from Sh63.2 billion previously.
