What is Housing Levy and What You Need to Know About it

Affordable housing is essential for every Kenyan citizen today. The Kenyan constitution dictates that the state should take legislative measures to ensure adequate and available housing for every Kenyan. The Treasury formally proposed changes to the Employment Act, allowing the deduction of 3% from employees’ basic salary to help fund President William Ruto’s plan to build up to 250,000 low-cost homes per year under his regime. Employees will use the contributions to fund the purchase of homes. 

Contribution

The recommended housing levy will be reduced from 3% to 1.5% per the proposed Finance Bill 2023. The bill has been tabled in the National Assembly for approval. With this change, the levy is now a tax the Kenya Revenue Authority collects.

Before, the contributions were capped at Ksh.5,000 for the employer and employee. However, with the bill's passing, employees must contribute per their earnings. So if an individual’s salary is ksh.500,000, they will be taxed Ksh.7500. The employer must match the contribution bringing the total to Ksh.15,000. 

The Benefit of the Housing Levy

The government set a target of building 2 million affordable units by 2030. The government expects the levy to generate 57 billion yearly for the construction of these units.

While the housing levy change has been met with much debate, it has significant advantages going beyond just achieving shelter.

President Ruto highlighted the contribution to creating jobs as the government plans to construct 250,000 homes annually. The program should create demand for skilled, unskilled, and semi-skilled labor. The housing plan can also stimulate markets for paint, cement, chemicals, and equipment, thus advancing manufacturing in the county.

Employees qualifying for affordable housing can finance home purchases using their contributions. In addition, even if the employee does not qualify for affordable housing, they can benefit upon expiry of seven years in ways such as:

• Transferring contributions to retirement benefits or pension schemes.
• Transferring contributions to a spouse or dependent children.
• Transferring the contributions to any person eligible for affordable housing.
• Receiving their contributions in cash as part of the taxable income, subject to a tax deduction. 

Conclusion

‍In conclusion, the government requires employers to deduct and remit the levy with other payroll statutory deductions. The regulations indicate that failure to adhere to this directive will attract various penalties for non-compliance. Similarly, those who will not get a house from this plan will enjoy contributions in other ways.

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