President William Ruto’s pet housing programme faces headwinds after the Treasury published proposals to end tax breaks on construction materials used in the scheme.
In the proposals contained in the Finance Bill 2025, the Treasury seeks to strike off the building materials from items exempted from value-added tax (VAT), meaning the charge will be imposed if Parliament ratifies the Bill.
The existing VAT Act provides for the tax exemption of goods imported or purchased locally for direct and exclusive use in the construction of houses under the affordable housing scheme.
To benefit from this exemption, the affordable housing project needs to be approved by the Housing Cabinet Secretary, with the rules requiring the application for exemption to be made in advance to the State Department for Housing.
Once approved, the application is forwarded to the Treasury Cabinet Secretary for approval and subsequent action by the Kenya Revenue Authority.
The housing programme was first conceived in 2018 as part of the government’s Big Four Agenda under President Uhuru Kenyatta and has since its launch benefited from tax breaks aimed at incentivising the development of affordable homes.
In a departure from his predecessor’s financing model for the programme, President Ruto’s regime introduced the compulsory housing levy through the Finance Act of 2023 before it was declared unconstitutional by the courts.
The levy was later reintroduced under the Affordable Housing Act 2024, which received presidential assent in March last year.
Since July 2023, the Kenyan workforce has been deducted 1.5 percent of their salaries to fund the scheme, with employers matching the contribution.
The State had targeted to deliver 200,000 houses per year but has since fallen short of the target.
The programme has, however, come under public scrutiny over missed targets alongside a myriad of other teething problems, prompting the State to float a bid for independent consultants who will be tasked with reviewing its impact on jobs, manufacturing, the informal sector, as well as on skills development and job training, with housing CS Alice Wahome revising the number to 5,000 quarterly in April this year, translating to a revised annual target of 20,000 units.
Among the challenges holding back the programme’s takeoff include budget cuts and delayed delivery by contractors, in addition to controversies around land ownership and awards of project contracts.
