State moves to widen housing levy net

The government has moved to expand the affordable housing levy to include the incomes of those in the informal sector.

The Affordable Housing Bill, 2023, currently before the National Assembly, comes after the High Court declared the current housing levy imposed only on employees in the formal sector as unfair and unconstitutional.

The levy came into force following an amendment to the Employment Act through the Finance Act, 2023.

The government-sponsored Bill by Majority Leader Kimani Ichung’wah seeks to cure the unconstitutionality of the levy.

The government, through lawyer George Murugara, who also doubles as the National Assembly Justice and Legal Affairs Committee chairperson, sought a 45-day suspension of the implementation of the court ruling.

The Bill seeks to establish the Affordable Housing Fund to be managed by a board.

It states that an employer shall deduct 1.5 per cent from their employees’ monthly gross pay and remit an amount that matches the employee’s deduction to the Fund.

“There is imposed a levy known as the affordable housing levy. The levy shall be at the rate of 1.5 per cent of gross salary of an employee or the gross income of a person received or accrued,” states the Bill that was read for the first time in the House.

President William Ruto is targeting to construct 200,000 affordable housing units annually, which, he says, will create between 600,000 and one million jobs each year.

In a bid to actualise this, the National Assembly appropriated and ring-fenced Sh73 billion in the current financial year’s budget towards the project that seeks to promote home ownership among Kenyans.

Lack of public participation was another reason that the High Court used to declare the current deductions unconstitutional.

To address this, the Bill has now been committed to a committee of the House for processing, which includes taking the views of Kenyans before it is enacted.

Read: Why court spared 3.2 million Kenyans from housing levy

“The levy shall be payable to the collector for remittance into the Fund not later than the ninth working day after the end of the month in which the gross salary was due or gross income was received or accrued,” reads the Bill.

An employer who defaults on the payment of the levy to the Fund faces sanctions that include penalties.

“Where an amount of the levy remains unpaid after the date when it becomes due and payable by a person liable to remit the amount, a penalty equal to three per cent of the unpaid amount shall be due and payable for each month that the amount remains unpaid,” reads the Bill.

The Bill adds that the defaulted or unremitted amount shall be “summarily” recovered as a civil debt from the entity or person liable to remit the amount.

Currently, an employer who defaults in remitting the amount is liable to payment of a penalty equivalent to two per cent of the unpaid funds for every month if the same remains unpaid.

Other than the monthly levies, also to be paid into the Fund are monies appropriated by the National Assembly, gifts, grants or donations, income from investments made by the Fund and income accruing to the Fund in the course of the performance of its functions.

The court had noted that targeting persons in formal employment and leaving those in the informal sector is discriminatory.

“The imposition of the housing levy against persons in formal employment to the exclusion of other non-formal income earners to support the national housing policy without justification is unfair, discriminatory, irrational, and arbitrary and in violation of the Constitution,” the court ruled.

Read: High Court quashes Housing Levy

The Bill further states that the purpose of the Fund shall be to provide funds for the development of affordable housing and associated social and physical infrastructure. This includes the provision of low-interest loans for the acquisition of affordable housing units within the approved affordable housing scheme in all 47 counties.

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