A larger number of low-cost housing developers will benefit from a lower corporate tax after the Treasury proposed slashing the minimum number of units required to qualify for tax cut to 100 from 400.
In a move aimed at encouraging developers to build low-cost units—a segment in which there is a pronounced shortage—the draft Income Tax Bill says those developing 100 units will pay 15 per cent tax on the resulting profits, instead of the normal 30 per cent.
“A company that develops at least one hundred low-cost residential units annually with prior approval by the Cabinet Secretary responsible for housing, (will pay) 15 per cent for that year of income in respect of gains or profits from the development of such units,” reads the draft Bill.
The current Income Tax Act, which will be repealed once the new Bill is passed, states that a company that has constructed at least four hundred residential units annually would get the 15 per cent tax waiver, without making a distinction between low cost and other types of housing.
Kenya faces an annual shortage of 200,000 new housing units every year, 80,000 of them in Nairobi alone.
Treasury secretary Henry Rotich’s move to sweeten the tax incentive for developers is therefore seen as a signal of intention to close this gap, and also an effort to support one of the government’s “Big Four” agenda items of affordable housing.
It has identified the low cost housing segment as key in driving home ownership in the country, with a target of at least 500,000 new units in the next five years, partially through public private partnerships.
In the past few years when there has been a real estate boom in the country, developers have tended to shun low-cost housing development in favour of the upper end of the market where there are higher returns for fewer units.
The spiralling cost of land, labour and materials has also placed home ownership beyond the reach of majority of ordinary Kenyans, prompting the intervention by the government to incentivise developers.
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