The Kenya Revenue Authority (KRA) has said casual workers and board members of public and private firms are required to pay the affordable housing levy.
The taxman in a letter dated September 13, 2023, said directors in State corporations as well as those in various companies must pay the housing tax because they earn an income for rendering a service to the employer, just like all other workers.
“Therefore, affordable housing levy is applicable to all employees, including directors, notwithstanding their terms of engagement or contract of service,” said the KRA’s deputy commissioner for policy and tax Advisory, Esther Wahome.
The Association of Pension Trustees and Administrators of Kenya had sought clarity from the taxman on whether the affordable housing levy (AHL) applies to the board of directors’ allowances paid every quarter, honoraria paid every month and salaries paid to casual workers.
But the taxman says in the letter that gross monthly salary constitutes basic salary and regular cash allowances. KRA says that honoraria and directors’ allowances would qualify as regular allowances as directors’ meetings often take place in scheduled intervals and as such have a degree of regularity.
“Honoraria paid on a monthly basis and director’s allowances paid on a quarterly basis for a contract of service are therefore subject to affordable housing levy. Further, salaries paid to casuals for services provided for a period of time are also subject to AHL,” said Ms Wahome in the letter.
At present, an estimated three million Kenyans are making contributions to the fund based on wage employment statistics from the Kenya National Bureau of Statistics at the end of 2022, with the bulk of contributors being teachers and security forces.
The statutory deduction adds to the tax burden on employed Kenyans who are struggling with the rising cost of living amid a freeze on salary increases and employment by Kenyan firms.
The policy, which was first mooted and rejected during former President Uhuru Kenyatta’s second term, sees employers contribute to the fund, adding to the cost of doing business.
The Treasury had initially proposed changes to the Finance Act to allow the deduction of three percent from employees' basic pay to help fund President Ruto’s ambitious plan to build low-cost homes.
However, to appease taxpayers, the House team has reduced the contribution from the proposed 3.0 percent to 1.5 percent but shifted it into a tax, which will now be collected by the KRA alongside other levies.
Dr Ruto’s administration wants to build houses as part of his bottom-up economic model, arguing that it will provide shelter to those living in slums and create jobs via the construction of 250,000 houses annually.
Contributions under the Housing Development Levy are expected to soar by 40.8 percent to hit Sh89 billion in the 2026/27 financial year, up from Sh63.2 billion in the current fiscal cycle.
