Pay cut to fund low-cost housing

Affordable housing
Affordable housing is one of the four pillars of President Uhuru Kenyatta’s agenda for the next four years. FILE PHOTO | NMG 

Workers are set to take a pay cut of up to Sh5,000 each to finance a new low-cost housing fund.

Employers will also be required to match employees’ contribution to the fund, up to a maximum of Sh5,000 each.

The Treasury has set the low-cost housing deduction at 0.5 per cent of the gross pay per month as long as the contribution does not exceed Sh5,000. For example, an employee earning Sh100,000 will contribute Sh500 every month, rising to the maximum Sh5,000 for those earning Sh1 million and above.

“In order to promote development of low-cost housing for Kenyans, I propose to amend the Employment Act to provide that an employer shall contribute to the National Housing Development Fund, in respect of each employee in his or her employment 0.5 per cent of the employees gross monthly emolument subject to a maximum of Sh5,000 while the employee will contribute 0.5 per cent of their monthly gross earnings,” said Mr Rotich on Thursday.

The proposal comes only two months after the State Department of Housing announced that it was finalising a set of regulations to operationalise a housing development fund.

The fund has been in the Housing Act for decades but has never been implemented.

“As an employee, you’ll put money into the fund, and whatever you put into it, your employer is going to be required to match the same amount. It’s like a pension, but for housing,” Housing principal secretary Charles Mwaura said in an earlier interview.

Initially the contribution was reported to be five per cent but this has been reduced by a factor of 10 to make it 0.5 per cent.

“The mechanism of how these contributions are to be made is as yet uncertain but presumably will be similar to contributions made to the National Social Security Fund and the National Hospital Insurance Fund,” said Ilyas Khan of Deloitte East Africa.

However, the provision could still face hostility from unions and employers who consider the tax burden already too heavy on them.

Affordable housing is one of the four pillars of President Uhuru Kenyatta’s agenda for the next four years.

The agenda has been also been further backed by the establishment of the Kenya Mortgage Refinancing Company which was incorporated in April.