Kenya’s housing scheme could bring about double taxation

As part of Kenya’s Big Four Agenda, involving providing affordable housing; food security; affordable healthcare and manufacturing, Kenyan workers will from this month end, contribute 1.5 percent of their salaries to the project.

A notice by the Principal Secretary Housing and Urban Development Charles Hinga, based on a directive added in the Finance Act 2019, states that “Both the employer and the employee shall each contribute 1.5 percent of the employee’s monthly basic salary, provided that the sum of the total monthly contributions shall not exceed five thousand shillings.”P

Employers are also required to send an amount matching employees’ deductions to the National Housing Development Fund which receives the
1.5 percent of employees basic salary.

Housing Levy is kicking in this month;

Assuming your salary remains constant, in 15 years you will have worked for about 3 months for a house you aren’t sure when you will win now that GoK said the houses will be allocated via a lottery system.

Razor blade is that one.— Wathika (@uwanja) April 16, 2019

The Ministry of Housing and Urban Development which stated that the first contribution will be due by May 9, 2019, also noted that “provided that the sum of the total monthly contributions shall not exceed Sh5,000. Voluntary contributions may also be made to the scheme at a minimum of Sh2,000 per month.”

This salary remittance does not augur well with many who say it’s unconstitutional, fraudulent and amounts to double taxation, especially as people are already contributing to the National Housing Development Fund. A fund which does not guarantee that the houses will be given to the workers because the workers have to be eligible before they can be allotted a house. However, it is worthy to note that the contributor’s levy can either be transferred to a pension scheme, to another person under the affordable housing scheme or the person can cash out after exit which is at the end of 15 years, that is if the project is still on-going by then.

According to Peter Karanja, Kenya’s KPMG tax partner, 2.4 million Kenyans who earn below Sh100,000 per month are eligible for a mortgage under the affordable housing scheme. This is not inclusive of the 77,000 high-earning employees, most of whom already own houses but will still make the monthly contributions.

Based on the 2017 Statistical Index from the Kenya National Bureau of Statistics, the country’s wage bill in 2016 was Sh1.6 trillion. This means that the government can potentially collect Sh48 billion annually from the levy out of which Sh24 billion is collected from the employers.

Currently, Kenya requires more than 250,000 housing units every year to meet demand. This is against the annual average of 50,000 units delivered by the government and private developers per year.