Tax relief for workers saving in mortgage firms for home purchase is set to be eliminated, which will see employees pay full tax on their pay.
The government has proposed to amend the Income Tax Act to end the 24-year practice.
The relief cut the pay that is subject to tax by up to Sh8,000 monthly or Sh96,000 annually, translating to savings of up to Sh2,500.
This means that savers earning Sh100,000 a month pay tax on Sh92,000 if they save the maximum Sh8,000 under Home Ownership Saving Plan (Hosp).
The relief is among a number on incentives that the Treasury has withdrawn to boost tax collections, arguing that it was benefiting the rich at the expense of the poor.
The plan was conceived as a 10-year saving scheme to cater to people who save to acquire homes or are building deposits for easy access to mortgage.
It was introduced on January 1, 1996 with its rates being adjusted for the last time in 2007/08 financial year.
In Kenya, most banks require borrowers to provide cash equivalent to 15 percent of the value of a home before accessing mortgages.
Less than 10 percent of Kenya’s housing credit is in the form of bank mortgages, with most people borrowing from savings and loan cooperatives, funded by members’ deposits, the World Bank says.
Kenya had just 26,504 mortgage loans valued at Sh224.9 billion or 2.74 percent of GDP in 2018. Lack of deposits required to access mortgage has been cited as one of the reasons behind the small number of home loans, prompting tax incentives to boost savings for buying property.
The value of mortgage loan assets outstanding increased from Sh223.2 billion in December 2017 to Sh224.9 billion in December 2018.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
