The Treasury has formally proposed changes to the Employment Act to allow deductions of three percent from employees' basic pay to help fund President William Ruto’s ambitious plan to build low-cost homes.
Treasury CS Njuguna Ndung’u has, however, capped the proposed deductions, which will be matched by employers, at Sh5,000 in what is largely a reintroduction of a policy rejected during retired President Uhuru Kenyatta’s administration.
The proposals through the Finance Bill 2023, which has been tabled in the National Assembly for approval, provide that “the sum of the employer and employee contributions shall not exceed Sh5,000 a month”.
This means high-salaried workers will contribute less than three percent of basic monthly pay to the National Housing Development Fund if the lawmakers approve the proposed changes to the law.
The proposed housing levy largely mirrors a policy that was dropped by the previous administration following sustained pressure from labour unions and employers.
The current proposal has, nonetheless, doubled the deductions to three percent from the 1.5 percent in Finance Act 2018.
Employees will use the contributions to finance the purchase of houses under the Ruto administration’s ambitious affordable housing scheme which aims to construct up to 250,000 low-cost units every year.
High-income earners who do not qualify for the low-cost housing scheme will, however, wait for seven years, or upon retirement, to transfer the contributions to a retirement benefits scheme or a pension scheme fund.
The high-salaried earners further have the option to transfer the savings to a “person registered and eligible for affordable housing under the National Housing Development Fund”, spouse or dependants after the seven-year period.
They can also access the savings in cash as part of their income which will be taxed at prevailing rates, according to the Finance Bill.
“All contributions shall get a return based on the return on the Fund,” the Bill states. The proposed deductions will start after the Housing ministry and the Treasury develop and enforce regulations prescribing the qualifications to participate in the scheme.
A raft of court cases by the Central Organisation of Trade Unions (Cotu), the Trade Union Congress of Kenya, the Consumer Federation of Kenya (Cofek) and the Federation of Kenya Employers (FKE) forced the former President to drop a similar proposal in 2019.
“The implementation of the Housing Fund Levy as a mandatory contribution, for both employees and employers, has at every turn, been fraught with an avalanche of legal hurdles and obstacles…,” Mr Kenyatta said in Jamhuri Day speech of 2019.
“In this regard, and to ensure that the implementation of the programme is not derailed any further, I hereby direct and order that The National Treasury, the ministry responsible for Housing moves to Parliament, a revision to the legal requirement in respect to the Housing Fund Levy, to make the contribution voluntary, with immediate effect.”