Housing levy to take effect next month as employers say order 'unlawful'

The government has directed employers to start deducting 1.5 percent housing levy from all employees in the public and private sector beginning next month.

Housing and Urban Development Principal Secretary Charles Hinga Mwaura and the Kenya Revenue Authority Commissioner-General John Njiraini in a joint statement said employers are required to deduct and remit the levy by the 9th of each succeeding month effective May 9.

“The first contribution shall be due by 9 May 2019,” they said in a statement.

“Both the employer and the employee shall each contribute 1.5 percent of the employee’s monthly basic salary, provided that the sum of the total monthly contributions shall not exceed Sh5,000.”

Transport, Infrastructure, Housing and Urban Development Cabinet secretary James Macharia was earlier in January this year quoted saying the affordable housing project will be implemented after successful talks with workers’ union and employers.

“We had injunctions that halted the process but the parties have agreed to withdraw them so we are ready to proceed with the project,” Mr Macharia was quoted saying.

'Unlawful'

But on Tuesday, Federation of Kenya Employers (FKE) CEO Jacqueline Mugo termed the order to deduct the levies “unlawful.”

“We did not agree to this at all. The court injunction is still on. This is therefore an unlawful order,” Ms Mugo told the Business Daily in a telephone interview.

Mr Macharia did not explain how the deal was reached with FKE and the Central Organisation of Trade Unions (Cotu) who had filed a case in bid to stop the levy.

The Business Daily could not immediately reach Cotu Secretary-General Francis Atwoli for his reaction.

The 1.5 percent levy on salaries is expected to generate about Sh57 billion a year, from about 2.5 million salaried Kenyans, with additional revenue expected to come from voluntary contributors, who will be putting in a minimum of Sh200 into the fund per month.

Cotu filed an urgent application in December last year at the Employment and Labour Relations Court challenging the levy's legality.

Justice Hellen Wasilwa granted the request, halting implementation of the tax designed to fund one of President Uhuru Kenyatta's Big Four agenda projects.

Mr Atwoli had earlier faulted the scheme, in his application to stop the levy, saying the scheme "was too heavy a burden for Kenyan workers in wake of rising cost of living."

Under the State home plan, contributors earning more than Sh100,000 will use their savings to get mortgages with annual interest of seven percent to buy the affordable houses.

Top earners

The government had earlier locked out the top earners from benefiting from homes or mortgages from the fund and instead offered to refund those earning above Sh100,000 their contributions plus interest after 15 years of contribution.

Contributors can use their savings as a deposit or security when negotiating for mortgages to buy the affordable houses, while low-income buyers can use the savings to access tenant purchase schemes that eventually leave them as owners.

Workers earning less than Sh50,000 will be offered homes under the tenant purchase scheme.

Those on gross pay in excess of Sh50,000 will be offered mortgages at seven per cent per annum and expected to repay their loans after 15 years.

At seven percent per annum, the pricing of the mortgages is cheaper than commercial rates that charge double-digit interest rates.

Although the initial plans projected the construction of half a million houses, Mr Macharia had said that local and international developers have expressed interest in putting up to a million units. The project is estimated to cost up to Sh1.5 trillion.

“The project is no longer a vision but a reality,” Mr Macharia was quoted saying.

Mr Macharia had said the first 2,000 housing units under the project will be built on Nairobi's Park Road.

Refund

Addressing concerns over the levy, he had said that those who do not benefit from the housing project will get their money back at retirement.

“Those who do not get a house or already have one will get their money back when they retire. The only money that will not be refunded is the employers’ deduction,” Mr Macharia was quoted saying.