Housing Levy (Tax)
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- Housing Levy (Tax)
Housing Levy in Kenya is a mandatory contribution made by both the employer and employee by imposing 1.5% on employees’ gross salary and 1.5% on employers (amounting to double taxation). Self employed individuals on the other hand shall contribute 1.5% of their income. The levy is meant to address the housing deficit in Kenya.
The Kenya Revenue Authority is the body responsible for the collection of the Affordable Housing Levy.
The Housing Levy is a classic example of hypothecated tax. This means the tax is earmarked to achieve a specific purpose by the government and is not expected to be channeled to any other use other than the intended use.
- Hypothecation does have its fair share of challenges that make it an unattractive method of raising funds from the public. First, it is difficult to remove the tax when the task it was intended for has been achieved. The Government will always find other places to divert the money collected. Further, when such monies are collected they attract ‘tenderprenuers’ and thus increases the cases of graft. Case in point is how some private hospitals have colluded with corrupt NHIF officials in making fictitious claims and in some instances overpricing the medical services received by the members – Gibson Kuria (Tax Consultant at Andersen Tax, Kenya).
Pros
- It would enable more households to access affordable mortgages and rent-to-own schemes, as they would benefit from lower interest rates, longer repayment periods, and flexible eligibility criteria.
- It would create a more inclusive and equitable housing market.
- It would promote social cohesion by ensuring that people from different income brackets have access to safe and decent homes.
- It would assist in alleviating some of the pressures on social housing lists by increasing the availability of affordable rental and homeownership opportunities.
- It would create a pool of long-term savings for development.
Cons
- Penalties shall accrue for each month or part thereof that the levy remains unpaid and shall be recovered as a civil debt
- It amounts to double taxation.
- Part of a raft of new taxes which is burdening to the tax payers.
Controversy
- KRA begun deducting the 1.5% housing levy from peoples’ pay from July, 2023. One activist, amid the public outcry, took the government to court arguing successfully that it unfairly singled out Kenyans in the formal sector who get a monthly salary.
The Housing Levy was then declared unconstitutional on grounds that the levy was discriminatory and a direct violation of Article 10 of the Constitution of Kenya, by the ruling delivered by the Court of Appeal which upheld a High Court decision declaring the Housing Levy unconstitutional.
One of the amendments captured in the Affordable Housing Bill is that the new law extends the levy to other workers and now requires non-salaried Kenyans in the informal sector to pay the levy.
The Kenya Revenue Authority, amidst all these, stated that the deduction will be backdated to include the money that would have been paid had the scheme not been suspended.
The Housing Levy is amongst the new raft of taxes that tax payers are burdened to pay despite the harsh economic times. Kenya is indeed a highly taxed state.
Authors: Grace Wamae & Lilly Umazi
Photos: Tuko News
Disclaimer: The materials on this site constitute the views of the author(s), they do not constitute legal advice or opinion.
This information is not presented as a source of legal advice. You should not rely on the statement for legal advice or representations made within this website or by any other external referenced site.
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