Kenya’s Affordable Housing Levy has sparked debate across the nation. This new law affects your paycheck and the country’s housing situation.
The levy requires workers to contribute 1.5% of their monthly salary to fund affordable housing projects.
This means you’ll see a small deduction from your pay each month, starting in 2024.
Is this levy the solution to Kenya’s housing shortage? Or will it put extra strain on workers’ budgets?
Let’s take a closer look at what the Affordable Housing Act means for you and the country.
About the Housing Levy in Kenya
The Housing Levy in Kenya is a new government initiative aimed at funding affordable housing projects.
You need to know how this levy affects your paycheck and what benefits it might offer.
Legislative background
The Housing Levy stems from the Finance Act 2023. This law introduced changes to the Employment Act, creating the National Housing Development Fund (NHDF).
The NHDF’s goal is to support affordable housing initiatives across Kenya.
The levy requires both employers and employees to contribute. Each party must pay 1.5% of the employee’s gross monthly salary.
This applies to all workers in Kenya, not just those in certain sectors or income brackets.
The Kenya Revenue Authority (KRA) is in charge of collecting the levy. Payments are due by the 9th working day after each month ends.
Fundamentals of Affordable Housing Levy
The Housing Levy aims to build 250,000 new homes every year. This ambitious target seeks to address Kenya’s housing shortage, especially in urban areas.
Here’s what you need to know about the levy:
- Rate: 1.5% of the employee’s gross monthly salary.
- Your employer must match your contribution
- Payments are made through the KRA
- Contributors: Both employees and employers.
- Purpose: To fund the government’s affordable housing program.
- Effective date: March 19, 2024.
- Remittance: Employers are responsible for deducting and remitting both the employee’s and employer’s contributions to the Kenya Revenue Authority (KRA) by the 9th day of the following month.
You might benefit from this program. The law offers a 15% tax relief on your levy contributions. This relief is capped at 9,000 KES per month or 108,000 KES per year.
The Housing Levy affects your take-home pay. But it also aims to make home ownership more achievable for many Kenyans.
Implementation and compliance
The Kenya Housing Levy brings major changes for employers and employees. You need to know how it works and what happens if you don’t follow the rules.
Role of Kenya Revenue Authority
The Kenya Revenue Authority (KRA) plays a key role in the housing levy. They collect the money and make sure everyone pays. The KRA acts as the collecting agent for the levy.
KRA has set up systems to track payments. They work with employers to ensure smooth deductions from salaries. If you’re an employer, you’ll deal directly with KRA for levy matters.
KRA also handles questions about the levy. They’ve set up a helpline for this purpose.
Deduction methods and compliance measures
The housing levy is 1.5% of an employee’s gross monthly salary. Employers must match this amount. Here’s how it works:
- Employers deduct the levy from paychecks
- They add their matching contribution
- The total is sent to KRA
You must pay the levy by the 9th of each month. This is the same as the PAYE due date.
KRA has tools to help with calculations. They’ve also put out guides on how to comply.
Consequences of non-compliance
Not paying the levy can lead to big problems. The law sets out clear penalties:
- A fine of 3% of the unpaid amount for each month it’s late
- This is higher than the old 2% penalty
KRA can take strong action against those who don’t pay. They might:
- Freeze bank accounts
- Seize assets
- Take legal action
It’s crucial to stay on top of your levy payments. Set up systems to ensure you never miss a deadline.
Impact on employers and employees
The Kenya Housing Levy affects both employers and employees financially. It changes how salaries are calculated and impacts take-home pay.
Let’s look at the key aspects of this new law.
Calculation of levy on gross income
If you earn, say, 100,000 Kenyan Shillings (KES) per month:
- Your contribution: 1,500 KES
- Your employer’s contribution: 1,500 KES
- Total levy: 3,000 KES
| Gross Income (KES) | Employee contribution (1.5%) | Employer (1.5%) |
| 50,000 | 750 | 750 |
| 100,000 | 1,500 | 1,500 |
| 150,000 | 2,250 | 2,250 |
| 180,000 | 2,700 | 2,700 |
| 200,000 | 3,000 | 3,000 |
If you earn KES 50,000 gross income, 750 will be deducted from your net income:
The levy applies to all income earned in Kenya. This includes wages, salaries, and payments to contractors.
Self-employed individuals must also pay 1.5% of their gross income.
Employers need to include this levy in their payroll calculations. They must remit it along with other deductions like PAYE (Pay As You Earn) tax.
Benefits and allowances subject to levy
The Housing Levy applies to more than just basic salary. It covers most types of income and benefits you receive from your job.
Items subject to the levy include:
- Basic salary
- Overtime pay
- Bonuses
- Commissions
- Housing allowance
- Transport allowance
Some non-cash benefits may also be taxed. For example, if your employer provides a company car, its value could be added to your gross income for levy calculations.
Certain benefits are exempt from the levy. These often include:
- Medical coverage
- Life insurance premiums
- Pension contributions
It’s important to check your pay slip carefully. Make sure the levy is being calculated correctly on all applicable income.
Affordable housing relief for employees
While the Housing Levy adds a new expense, there are some potential benefits for employees. The government has introduced an Affordable Housing Relief to offset some of the costs.
Key points about this relief:
- It can reduce your taxable income by up to 9,000 KES per year.
- You must apply for the relief through your employer.
- The relief is only available if you’re contributing to an approved housing scheme.
To claim this relief, you’ll need to:
- Confirm you’re enrolled in an eligible housing program.
- Fill out the necessary forms provided by your employer.
- Submit any required supporting documents.
Keep in mind that this relief doesn’t fully cover the cost of the new levy for most workers. But it can help reduce the overall impact on your take-home pay.
Development of housing units
The Affordable Housing Programme plans to build many low-cost homes across Kenya. These affordable housing units will help more people own homes while they rent.
The government works with builders to make this happen.
The program sets rules for what counts as an affordable home. This includes size limits and price caps. Homes must be good quality but stay cheap enough for average Kenyans to buy.
Builders get incentives to take part. These may include tax breaks or easier approval processes. The goal is to build homes faster and keep costs down.
Legal considerations and court decisions
Kenya’s housing levy has faced significant legal challenges. The courts have issued important rulings that affect how the levy is implemented.
These decisions have sparked debates about the levy’s constitutionality and the government’s approach to affordable housing.
High Court and Court of Appeal rulings
The High Court declared the housing levy unconstitutional in a landmark decision. This ruling was a major setback for the government’s housing plan. The court found that the levy violated several constitutional principles.
The government appealed this decision to the Court of Appeal. In January 2024, the Court of Appeal upheld the High Court’s suspension of the levy.
This meant employers could not deduct or remit the housing levy from employee salaries.
The Court of Appeal’s decision created uncertainty about the levy’s future. It left open questions about whether collected funds should be refunded to taxpayers.
However, since March 19th, 2024 the levy came to effect, and implementation set to run starting July this year.
