INSIGHTS

The Affordable Housing Bill 2023: Out with the Old and in with the New

The signing of the Affordable Housing Bill 2023 into law by the President on 19th February 2023 ended protracted debates about whether the unpopular housing levy would make a comeback.

Introduction

Background

The signing of the  Affordable Housing Bill 2023 into law by the President on 19th February 2023 ended protracted debates about whether the unpopular housing levy would make a comeback. The Bill was realised after law makers were forced back to the drawing board to craft a new law.  This was after the High Court declared the Amendment that introduced the Housing Levy unlawful in late 2023.

The High Court on had invalidated for a myriad of reasons including that no prior public participation had been conducted as required by the constitution and that the law was discriminatory for only being applicable to salaried Kenyans.

Differentiating the old and the New

Under the repealed law, the Employees were required to surrender 1.5% of their gross monthly earnings which would be matched by their employers. This was controversial as non-salaried persons were not subjected to the same deduction which was intended for the collective benefit of all Kenyans. Under the new law, the percentage of the deductions remain the same but non-employees are also obligated to remit 1.5% of their gross earnings. The practicality and enforceability of the latter provision, however, waits to be seen. Further, the court, while invalidating the old Housing Levy stated that the Kenya Revenue Authority was not expressly authorized to collect the deductions on behalf of the government. The new Act expressly tasks the Kenya Revenue Authority with the responsibility of collecting the deductions, and mentions that the Cabinet Secretary of the Treasury may designate another collector.

Perhaps the most welcome development is the introduction of a tax relief for all persons remitting their housing levy. The Affordable Housing Act grants a housing Levy relief of up to 15% of a person’s taxable income. This relief is however capped at 9,000 Kenyan Shillings per month and is reserved for individuals actively engaged in the affordable housing scheme.

The Affordable Housing Act also cures the criticism that the old Housing levy was discriminative by design because it was seemingly tailored for the benefit of urban dwellers. The new category of “Rural Affordable Housing” has been introduced under the Act specifically targeting Kenyans residing outside urban areas.

Types of Housing

There are three different types of housing units mentioned under the Act are:

  1. social housing unit targeting Kenyans with a monthly income falling below Kshs 20,000
  2. an affordable housing unit targeting Kenyans with monthly income falling between  Kshs 20,000 and Kshs. 149,000
  3. an affordable market housing unit unit targeting Kenyans with monthly income above Kshs. 149,000; and
  4. Rural affordable housing unit – means a house targeted at a person living in any area that is not an urban area.

The Implications

The Act came into effect on the date it was signed on 19th February 2024, which means that the levy will be deductible from the end of the same month.

Employers will therefore be required to effect deductions and remit the same to the Kenya Revenue Authority by 9th April 2024 latest, and to not forget incorporating the the 15% relief in their computation for employees who have registered for the scheme.

Similarly, employees will immediately cease enjoying the reprieve offered by the court decision that suspended the collection of the levy. Those who wish to benefit from the tax relief are however first required to make an application under the affordable housing scheme(done via Boma Yangu) or prove that they are saving for a purchase under an approved affordable housing scheme. 

It is of note that the income to be subjected to the levy does not include non-regular income such as leave allowance, bonuses, gratuities, pension, severance pay, and other terminal benefits

Conclusion

Doubts regarding the longevity of the newly assented Affordable Housing Act continue to linger, specifically, regarding its ability to withstand the anticipated barrage of court cases challenging its legality and practicality.

One of the cases filed at the high Court only one day after the Bill was signed into law, among other things, challenges its legality to enforce what amounts to compelling individuals to pay for unwanted mortgages.

Another sore spot that remains is the unequal weight placed on Employers and Employees compared who have to foot a combined total of 3% of the Employee’s salary compared to non-salaried individuals who are only required to make payments amounting to 1.5% of their income.

Key Insights at a Glance

The Affordable Housing Act grants a housing Levy relief of up to 15% of a person’s taxable income. This relief is however capped at 9,000 Kenyan Shillings per month and is reserved for individuals actively engaged in the affordable housing scheme.
The Act came into effect on the date it was signed on 19th February 2024, which means that the levy will be deductible from the end of the same month.
There is an unequal weight placed on Employers and Employees compared who have to foot a combined total of 3% of the Employee's salary compared to non-salaried individuals who are only required to make payments amounting to 1.5% of their income.

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