Kenyans in formal employment will not be forced to contribute 1.5 percent of their gross salary as housing levy after the government bowed to pressure and announced it would be made voluntary.
President Uhuru Kenyatta, citing court cases and opposition from workers and employers, Thursday directed the Treasury and the Ministry of Housing to make the necessary changes to the Housing Fund Levy and table them before Parliament for adoption next year.
The levy has been a key plank of the President’s ambitious Big Four Agenda to provide 500,000 affordable houses by 2022.
“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 his Jamhuri Day speech.
“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.”
Under the Finance Act 2018, workers were supposed to contribute 1.5 percent of their basic salary monthly – provided the total contributions do not exceed Sh5,000 -- to the National Housing Development Fund. Employers were to match each worker’s contribution. They were required to deduct and remit the levy by the 9th of each succeeding month effective May 9.
Lobby groups like the Central Organisation of Trade Unions (Cotu), Trade Union Congress of Kenya, Consumer Federation of Kenya (Cofek) and the Federation of Kenya Employers (FKE) challenged the levy in court, arguing that it would increase the tax burden on workers and employers.
The presidential directive comes months after the Labour Court temporarily stopped the government from implementing the levy that was set to start in May to allow the consolidation of the case by Cofek.
Cotu had in its opposition against the levy said it should only come into force after at least 15 percent wage rise while the FKE termed it unsustainable.
On Thursday, the President also directed the Attorney-General and the Treasury to draw a framework that will waive court fees for businesses worth less than Sh1 million in what is set to boost the growth of micro, small and medium enterprises (MSMEs).
Mr Kenyatta said that the move, set to take effect from March 1, 2020, will help the small businesses to cut litigation costs. Court fees and advocates charges take up at least 40 percent of the value of commercial disputes.
SMEs are the country’s biggest employer, accounting for an estimated 14.9 million people as at end of 2017, according to data by the Kenya National Bureau of Statistics.