The National Treasury projects to collect Sh95.84 billion from the housing development levy in financial year starting July, signaling a boost to President William Ruto’s plan to put up 200,000 subsidised houses annually for middle- and lower-income households.
Budget documents tabled in Parliament by the National Treasury Cabinet Secretary (CS) John Mbadi shows the statutory deductions from pay slips will grow by nearly half (46.26 percent) compared with Sh65.53 billion estimates for the current year.
The Affordable Housing Act 2024 requires employers to deduct 1.5 percent of gross monthly pay to employees and match the contributions towards the housing levy.
Persons outside employment also contribute to the levy at the rate of 1.5 percent of gross income under the housing law, unlike the previous framework under the employment law which had left out workers in the informal sector, or jua kali.
The forecast Sh30.31 billion jump has come at a time employers have called on the Ruto administration to consider slashing the levy to 0.5 percent, citing the continued hit on workers take-home amid rising inflation.
“We have proposed broader reforms to improve worker welfare and support business sustainability. These include pegging statutory deductions to basic pay, revising tax relief bands from Sh24,000 to Sh36,000, reducing the Housing Levy to 0.5 percent, and zero-rating VAT (value-added tax) on basic food items,” Federation of Kenya Employers (FKE) Executive Director Jacqueline Mugo wrote in a speech prepared for International Labour Day.
She was not accorded an opportunity to deliver her speech.
A total of Sh54.16 billion was remitted by employers and employees towards housing development levy in the first year of enforcement ended June 2024, according to the Treasury, narrowly missing the target of Sh54.58 billion by Sh415 million or 0.76 percent.
The deductions from employees — whether on permanent and pensionable terms or contract-based engagements — were initially declared unconstitutional by the courts largely for being discriminatory and creating unequal principles under Employment law.
This was after they were applied on workers in formal employment only.
That prompted lawmakers to enact Affordable Housing Act 2024 to comply with ruling of the courts. President William Ruto signed the Act into law on March 19, enabling KRA to resume the deductions which had been suspended in January.
The law requires workers in the informal sector to also pay the housing levy at the rate of 1.5 percent of their gross monthly earnings to fund Dr Ruto’s pet project, but modalities for collections have not been clear.
Affordable Housing Board’s acting Chief Executive Sheila Waweru said in February contributions from informal sector have been coming through, albeit at a slow pace.
“There are people in informal sector who are already contributing, just that we don’t have everybody contributing mainly because it is about self-declaration of your income. This is something that we are trying to work on with KRA and ensure that everybody pays,” Ms Waweru said in an interview.
“If you are not truthful about your business, your income and the people you have employed, then it is also become difficult on our end and that’s when enforcement comes in. Whatever mechanism they [KRA] are using to collect the taxes, is the same mechanism for the housing levy because that is the same income from which you are required to pay the levy.”
The increased inflows from the levy has prompted the Treasury to raise the development budget for the State Department for Housing and Urban Development in the year starting July by 63.73 percent to Sh116.7 billion.
The increase of Sh45.43 billion for President William Ruto’s pet project over the Sh71.28 billion for the current year ending June will go towards putting up affordable, social and police housing units as well as development of social and physical infrastructure for the projects.
The government has identified about 12,000 acres of land under national and county governments for construction of affordable houses targeting at least 200,000 units a year.
The government is under the Affordable Housing Programme, building social housing units [bed-sitters] targeted at persons earning less than Sh20,000 per month, affordable housing for workers with income of between Sh20,000 and Sh149,000 and affordable middle-class housing for those earning more than Sh149,000.
Some 124,000 houses are at different stages of construction in various parts of the country, with 4,888 units expected to be ready for occupation by June.
The Affordable Housing Act 2024 has ring-fenced the housing levy funds to be spend on building of houses under a special fund to avoid diversion to other projects in the past where cash meant for stabilization of fuel prices were, for example, spent on road projects.
