More pain for Kenyan workers as homes levy deduction up three times

Workers will be deducted 1.5 per cent from their pay monthly to create a fund to finance a new low-cost housing fund after President Uhuru Kenyatta reinstated the levy that will chop salaries by up to Sh5,000.

Mr Kenyatta’s proposal is higher than the Treasury’s suggestion of 0.5 per cent of the gross pay per month matched by employers, which was rejected by MPs last month.

“An employer shall pay to the National Housing Development Fund… 1.5 per cent of the monthly basic salary,” said Mr Kenyatta in a memo to MPs.

The contribution will be capped at Sh5,000 with employers set to match the contribution. The President’s proposal means an employee earning Sh100,000 will contribute Sh1,500 every month to the fund – up to a maximum Sh5,000 for those earning Sh330,000 and above.

This is three times the Treasury’s proposal that those on a basic pay of Sh100,000 part with Sh500, up to a maximum Sh5,000 for those earning Sh1 million and above.

MPs rejected the Treasury’s proposal arguing that the move would cause a significant cost burden to companies while hurting workers.

It remains to be seen how they will react to Mr Kenyatta’s higher proposal given that the MPs must debate and adopt the proposal.

The fund has faced hostility from unions and employers who consider it a burden.

The creation of the fund is meant to help the government realise the goal of delivering half a million affordable housing units in five years.

This is one of the four pillars of Mr Kenyatta’s agenda for the next four years.

The Finance Bill has also introduced amendments to the Central Bank of Kenya Act to include regulation of mortgage refinance companies.

The move paves the way for the establishment of a State-backed Kenya Mortgage Refinancing Company meant to address the demand side of the housing market by offering funds to the mortgage industry.