What professionals want changed in Ruto's housing levy
President William Ruto addresses members of the public during the laying of a foundation stone for the construction of Pioneer Affordable Housing in Eldoret town, Uasin Gishu County on January 9, 2024.
What you need to know:
- ICPAK wants the Bill amended so that the proposed 1.5 percent deduction is made from basic salary and not gross pay.
- The accountants also said that deducting money only from salaried workers is unfair and discriminatory.
The Affordable Housing Bill, 2023 continues to face opposition from stakeholders.
This is after five organisations, including the Institute of Certified Public Accountants (ICPAK), raised concerns over the proposed legislation as public participation ended on Tuesday.
Other organisations that appeared before the National Assembly's Finance and Planning Committee to give their views on the bill include the Kenya Green Building Society, Real Estate Development and Finance Development, Kenya Real Estate Investment Trust, Oxygene and the Technical University of Kenya (TUK).
This comes as Kenya's county workers urged President William Ruto to prioritise reviewing their salaries before deducting the affordable housing levy.
ICPAK wants individuals servicing development loans from saccos and those paying mortgages to be exempted from the proposed 1.5 per cent housing levy, saying people in the two categories are already contributing to solving the country's housing problems and should not be subjected to the deductions again.
The body also wants the bill to be amended so that the proposed 1.5 per cent deduction is made from the basic salary and not the gross salary as is the case now.
ICPAK Chairman Philip Kakai told MPs that the imposition of the 1.5 per cent levy on gross pay, and the imposition of Pay As You Earn (PAYE) on gross pay, amounts to double taxation and further hardship for workers in these difficult economic times.
“The levy should not be imposed on the personal income. Parliament should set aside funds for housing. Funding should not be through payroll as the employee is already paying PAYE. As such, any other deduction on employment income should not be treated as a tax since it amounts to double taxation,” Kakai said.
The accountants also said the deduction for salaried workers was unfair and amounted to discrimination, as workers were now seen as soft targets by the government, while there was no clear plan on how to tax those in the informal sector or other sectors of the economy.
“While it is straightforward to deduct from salaried Kenyans with payslips, the same cannot be assumed from those without such documentation. How, for instance, are you going to tax mama mboga (vegetable seller) and the bodaboda person?” Kakai asked.
The Kenya Green Building Society said the 1.5 per cent deductions should be voluntary and not imposed in order to maximise individual economic freedom and encourage widespread participation.
“A voluntary levy fosters partnership not imposition and builds long-term programme sustainability,” the society said in its memorandum.
“Exempting unwilling employees from the housing levy finds support in arguments protecting individual choice and mitigating financial hardship,” added the society CEO Nasra Nanda.
The Society suggested that the levy should be based on pensionable pay to reduce administrative costs, arguing that a levy based on gross pay would place an administrative burden on employers, particularly those in the SME sector.
They also expressed concern that forcing the employer to match employee contributions to the levy will increase operating costs, potentially leading to job cuts and reduced wages for employees.
The Real Estate Development and Finance Development, represented by Effie Zuma, told MPs that the government needs to come up with a clear structure on how those in the informal sector will be taxed to ensure compliance and to address the current suspicion among salaried workers that they are being unfairly targeted.
It also wants the government to pursue other alternative means of achieving its objective by emulating models in the UK and Zimbabwe, where the government encourages self-building by providing serviced plots with basic infrastructure to its citizens either at a subsidised rate or free of charge.
It also argued that the three per cent penalty for those who fail to remit the monthly payment is harsh.
“Reducing it would strike a balance between enforcing compliance and recognising the economic hardship faced by employers thus fostering a more equitable approach in challenging times,” said Zuma.
In a memorandum presented by Willy Njoroge, the Kenya Real Estate Investment Trust said: “The Bill in its current form does not recognise Real Estate Investment Funds as a viable avenue through which affordable housing schemes can be implemented.”
The Trust said that while there is a need for affordable housing, this could be achieved through a single levy.
TUK Vice-Chancellor Benedict Mutua said there was a need to cap the amount to be deducted for the levy, to prescribe the minimum and maximum amount that can be deducted from workers.
Prof Mutua told MPs that while they supported the bill, old lecturers questioned whether they would benefit from the houses.
Oxygene, a communications agency, said the 1.5 per cent deduction should be made from employees' basic salary and not gross salary.
"The deduction from the gross salary thins out the employee's money left for expenses, which has a ripple effect on the economy," it said in a memorandum.
The organisations join others such as the Federation of Kenya Employers (FKE) which have warned against the 1.5 per cent deduction, saying it risks overburdening already overburdened employers.
The FKE also wants contributions to be capped at Sh5,000.
Meanwhile, Kenya County Government Workers Union (KCGWU) National Secretary-General Roba Duba has called on President Ruto to prioritise reviewing county workers’ salaries before imposing new taxes on them, including the affordable housing levy.
He said their salaries have not been reviewed since devolution was introduced in 2012, yet the government has introduced new taxes on money that is already insufficient in the current economic times.
Speaking to the press on Tuesday, Duba said the union was concerned about the new taxes introduced by the Kenya Kwanza administration.
“We are talking about workers whose salaries have not been revised since 2012. They are already overburdened, then in 2023/2024 you’re introducing new taxation on the same people, without due regard to the constitution that says that every two to three years, salary must be reviewed,” he said.
The secretary-general said the wage increase would protect Kenyan workers from the effects of inflation, which has pushed up the cost of living.
“Even if the housing levy is not contested, it does not matter for us, as long as the cost of living is not reviewed, the introduction of any tax by any name is not appropriate.”
In November last year, the High Court ruled that the government deducting 1.5 per cent monthly contribution from salaried workers was discriminatory, but the government appealed the case to be allowed to continue collecting the tax.
The Court of Appeal ruled last Friday that the government should stop deducting money from Kenyans for the housing levy until the matter is decided.
The Affordable Housing Bill follows a similar script to the Finance Bill, 2023, which was widely opposed by Kenyans. However, the government used its numerical strength in parliament to ensure it sailed through.
Proposals to cap contributions to the scheme at Sh5,000, halve the deposit for the houses to five per cent from the current 10 per cent, criteria for allocation of houses, compensation for those affected, ring-fencing at least 10 per cent of the houses for those in the informal sector dominated most of the meetings held by the committee.
Reducing the rent payable for various units, expanding the Affordable Fund Board to include other stakeholders and making contributions voluntary were also prominent in the public engagement.
The public also called for affirmative action in the Affordable Housing Scheme to allow lower deposits and cheaper prices for the marginalised, the youth and the disabled given the current economic situation in the country, and for the government to come up with compensation for those whose land will be used for the scheme.
Under the bill, employers will be required to deduct 1.5 per cent of their employees' gross monthly salary and pay an amount equal to the employee's deduction into the fund.
All employees, whether permanent and pensionable or contract workers, will be required to contribute to the Affordable Housing Fund.
The National Treasury expects deductions from the levy to be Sh63.2 billion in the current financial year ending June 2024, rising to Sh70 billion in the 2024/2025 financial year and Sh78 billion in 2025/2026.
Additional reporting by Kevin Cheruiyot
