The Gripples of the Housing Levy
On the 26th of June, 2023, the President granted assent to the Finance Bill, 2023, which proposes many changes. Among them, the Bill proposed an amendment to the Employment Act, by introducing a levy of a 1.5 percent deduction of an employee’s gross salary towards the National Housing Development Fund (NHDF) to fund Kenya’s affordable housing initiative. Employers will also be required to match the 1.5% housing deduction which will fund the government’s Affordable Housing Program.
While undergoing the third reading, this controversial proposal received a backlash with a heated debate between the Kenya Kwanza parliamentary representatives against their counterparts from the opposition coalition. 184 members of the national assembly voted in support of the introduction of this housing levy tax while only 72 members remained on the opposition.
What you need to know about the Housing Levy.
The National Assembly Finance and Planning Committee recommended an amendment in the Finance Bill, 2023 to convert the housing fund into a levy, which effectively means that the money will not be refunded after it is collected. Apprise of this and objections raised by the shareholders, the committee agreed to amend the proposal on Housing Fund by making it a levy as opposed to a contribution so that the funds can be appropriated directly to fund the housing initiative under the Bottom-Up Economic Transformation Agenda.
In response to the stakeholders’ submissions, the rate was successfully reduced to a manageable rate of 1.5 percent to appease taxpayers. The levy is now shifted into tax, which will now be collected by the Kenya Revenue Authority (KRA) alongside other levies.
This amendment removes the previous options for employees to purchase a home under an affordable scheme or transfer their contributions to a retirement benefits scheme or a registered provident fund. This will directly improve the living conditions for residents, and the issues of housing affordability will be addressed, subsequently stimulating economic growth in the construction and housing sectors through job creation for the youths.
Additionally, they can no longer transfer their contributions to their spouse nor children; however, they will be able to receive their contributions in cash after a period of 7 years.
Compliance With the housing levy in Kenya
The Finance Bill 2023 previously proposed that the contribution towards the housing fund initiative be capped at KES 2,500 each, for both the employee and employer. The recent move to reduce the rate to an uncapped rate of 1.5 percent will majorly affect employees earning above KES 166,667 as they will be forced to contribute more. The table below further explains this.
|Gross Income Amount||Employee contribution (1.5%)||Employer (1.5%)|
It’s an employer’s obligation to set aside the monthly payment for each employee not later than nine working days after the end of the month in which the payments are due, the amount comprises of the employee’s and the employer’s payment. This means the housing levy will form part of the statutory deductions. Any employer who fails to comply with the housing levy provision shall be liable to payment of a penalty equivalent to two percent of the unpaid funds for every month the same remains unpaid.
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