On 16th April 2019, the Ministry of Transport, Infrastructure, Housing, Urban Development and Public Works in conjunction with Kenya Revenue Authority issued a notice in the newspapers informing the employers, employees and the pubic that Finance Act 2018 relating to Housing Fund Levy had come into effect.
This meant that by May 9th, employers would deduct 1.5 percent from the salary of every employee, while at the same time adding a similar 1.5 percent for every employee, payable to the government. That means the employer has to remit an equivalent of 3 percent of the employee salary for the housing levy.
If you are not employed and want to be part of the scheme, you can contribute at least KES 200 per month. Both voluntary and statutory contributions cannot exceed KES 5,000 for every contributor.
Why housing fund levy?
The fund is being implemented on the basis of supporting one of the BIG 4 Agenda by Jubilee government. The statement in the newspapers from the ministry says that the fund will be used in the following ways:
“The Housing Fund shall be used to finance the Affordable Housing Scheme under the Big 4 Agenda. The benefits of contributions in respect of the employee shall include;
1. Purchase of a home under the affordable housing scheme.
2. In case of ineligibility for a home the contribution may be transferred;
- To a pension scheme
- To another person under the scheme
- As cash to self, spouse or a dependent child
Information relating to the payment process shall be communicated in due course.”
What the government can get from the housing fund levy
According to KPMG Kenya tax partner Peter Karanja, “2.4 million Kenyans who earn below Sh100,000 per month are eligible for a mortgage under the affordable housing scheme, leaving out 77,000 high-earning employees who nevertheless will make the monthly contributions.”
The 2017 Statistical Index from the Kenya National Bureau of Statistics shows thatKenya’s wage bill in 2016 was KES 1.6 trillion, which means the government can potentially collect KES 48 – 57 billion annually from the levy. According to Karanja, KES 24Billion of the collection from the employers will go “to subsidise affordable housing while the balance is contributors’ funds which will go towards the cost of the house or is refundable at the end of 15 years.”
President Kenyatta said that Kenyans were misunderstanding the housing levy as it is a type of saving. He had promised to deliver 500,000 units in five years, against an annual demand of 250,000 units of housing. Currently, only 50,000 units are built every year by both government and private developers.
Controversy surrounding the housing fund levy in Kenya
Kenyans have come out in droves to reject the housing fund levy for various reasons, citing among others overtaxation, lack of accountability by the authorities, rampant corruption in the Uhuruto government, and unclear communications on exactly how the fund would be used.
The Labour Court on Wednesday 17th April issued a temporary order stopping the implementation of the housing levy. Two court cases had been filed differently, one by the Central Organisation of Trade Unions (COTU), and the other by the Consumers Federation of Kenya (COFEK). COTU had first gone to court in December 2018 and obtained orders to suspend the Act.
Justice Maureen Onyango issued the temporary order to allow for consolidation of the cases and inclusion of other stakeholders such as the Federation of Kenya Employers (FKE) which terms the Act illegal. FKE Executive Director Jacqueline Mugo urged employers not to implement the policy.
COFEK’s concerns are
- Unjustified overtaxation of Kenyans
- It is unreasonable to compel citizens who will not secure a house to contribute towards house ownership [by] another person without corresponding benefits.
- there is no proof that consultations were done before section 31 (a) of the Employment Act, which introduces the levy, was inserted into the Finance Act.
According to another court order obtained by FKE on 8th April 2019, the case will be mentioned on 20th May 2019. Keep it here for more updates on the same.
