Cabinet scraps all construction levies to ease home costs

The Cabinet has scrapped all construction levies charged by State agencies and county governments in a fresh bid to lower project costs.

A statement from State House said the charges by agencies such as the National Environmental Management Authority (Nema) and the National Construction Authority (NCA) have been a barrier to investments.

Contractors pay environmental audits of between Sh10,000 and Sh40 million depending on the risk levels of their projects.

Developers whose projects exceed Sh5 million also pay a levy of 0.5 per cent of the value of the contract before they can start work to the National Construction Authority.

The Mining ministry in 2014 started collecting a two per cent royalty on construction materials — increasing the cost of quarry stones, concrete blocks, hardcore, ballast and sand.

This is on top of the county approval fee which is levied based on the size and cost of a home.

“Multiple charges levied by various ministries, departments, agencies and county governments on the construction industry have contributed to the increase of costs in the sector and led to inordinate delays in obtaining requisite approvals,” said the State House statement.

“Overlapping services will now be performed by the ministry, department or agency best suited to offer the requisite service.” Treasury secretary Henry Rotich in June scrapped the Nema audit fees and construction levy on projects to spur investments and make the country competitive.

But this failed to take effect. “It is up to the relevant ministry to discuss with Nema and then come up with a Bill. Once this is done, I expect it to be included in a Miscellaneous Bill,” Mr Rotich said earlier. “It is a sector Bill and so I couldn’t include it in the Finance Bill.” 

It’s not clear whether the Cabinet’s directive will take effect immediately or it sets the stage for revision of the laws to allow for removal of the charges.

The agencies that collect the fee have previously argued that the Treasury had approved their budget including the collections. For instance, Nema said they are expected to collect Sh800 million from licence fees.

This means the agency could suffer cash shortfalls should it stop collecting the fees, affecting its operations to ensure environmental safety. Nema has not been differentiating projects while charging the fees deemed punitive.

Investors have since September 2013 been paying a minimum Sh10,000 or 0.1 per cent of project cost without an upper limit, making it costlier for big ticket projects.