Housing Levy: AG advises KRA to stop collecting housing tax
Attorney-General Justin Muturi. The running of Vaell has been taken over by the Official Receiver in Insolvency, an agency under the Office of the Attorney-General.
What you need to know:
- Attorney-General Justin Muturi has cautioned the Kenya Revenue Authority (KRA) against making any collections from the affordable housing levy.
- KRA Commissioner-General Humprey Wattanga had in a February 12,2024 letter sought guidance from the AG.
Attorney-General Justin Muturi has cautioned the Kenya Revenue Authority (KRA) against making any collections from the affordable housing levy which was declared illegal by the Court of Appeal on January 26, 2024.
KRA Commissioner-General Humprey Wattanga had in a February 12,2024 letter sought guidance from the AG on the government’s position on the controversial levy.
Mr Muturi told KRA that the levy had no legal basis at the time of the Court decision hence the taxman should not make collections.
“The upshot of this is that there is no legal basis on which the housing levy as provided in section 84 of the Finance Act can be implemented,” the AG said in a February 21,2024 letter to Mr Wattanga.
“Therefore, our considered opinion is that as of the date of delivery of the ruling of the Court of Appeal i.e on January 26, 2024, there is no legal provision that enables the collection and administration of the housing levy,” he added in the letter copied to Treasury Chris Kiptoo and his Housing and Urban Development counterpart Charles Hinga and Solicitor-General Shadrack Mose.
Employers and employees paid out Sh26.8 billion under the mandatory housing development levy in the six months that ended in December, amid legal hitches that threaten to stop the controversial contribution.
Disclosures by the Parliamentary Budget Office (PBO), which advises lawmakers on the economy and budget, show the State Department for Housing and Urban Development had collected the amount against the Sh63.2 billion that the State targets to net by the end of the Financial Year ending June 2024.
At Sh26.8 billion, the government is averaging collections of Sh4.47 billion per month against the budgeted Sh5.26 billion, translating to a performance rate of about 85 per cent from the compulsory levy that has now been suspended by the courts.
Both employers and employees were remitting 1.5 per cent of gross salary under the Housing Levy that the government said would be used in the development of affordable housing and associated social and physical infrastructure.
The High Court last November declared the levy unconstitutional but allowed the government to continue collecting it until January 10 to give the State time to appeal.
The Court of Appeal on January 26, stopped the State from carrying on with the collections and Parliament has announced the intention to appeal the matter at the Supreme Court of Kenya.
PBO, in the financial and economic analysis of the Affordable Housing Bill 2023 that seeks to provide a legal framework to the levy, notes that the Bill has several key gaps but warns that the government will be exposed to legal risks given the many contracts it had already signed.
“If the current status is not addressed and the levy remains nullified, the government will be exposed to fiduciary risks due to the contractual obligations it has already entered with property developers for the ongoing projects since its exchequer funding is constrained,” says PBO.
