Introduction

Decent and affordable housing in Kenya is important as it affords dignity, security, and privacy to Kenyans. The Constitution of Kenya, 2010 mandates the State to take a legislative,

policy and other measures to achieve the progressive realization of among others, the right to adequate and accessible housing. Kenya has made considerable strides in addressing decent housing but more is required to be done, as has been recommended by recent studies.

Among the aspirations in the President’s Big Four Agenda is the goal of delivering Five Hundred Thousand affordable homes before the year 2022. On a broad scale, the President seeks to pursue partnerships with private developers to unlock land for development, reduce construction cost and grow the mortgage finance market. 

However, more relevant for this discussion is the proposal to introduce payments to the National Housing Development Fund (the “Fund”), which is the subject of this article. The Fund, which is proposed to be under the control of the National Housing Corporation (NHC), is established under the Housing Act.

Contributions and Returns

Contributions to the Fund were introduced by way of amendments to the Employment Act, 2007 (in the Finance Act of 2018). Employers and employees are required to each make a contribution of 1.5% of the employee’s monthly basic salary to the Fund provided that the combined contribution does not exceed Kshs. 5,000/ per month. Persons who are not in formal employment or who are non-citizens may contribute a minimum of Kshs. 200 per month. Gazetted Housing Regulations (the “Regulations”) allow for contributions above the statutory minimum. NHC is required to specify on a yearly basis the return applicable on members’ contributions.

Benefits to Employees

According to the Finance Act, 2018, the Employees who contribute to the Fund shall benefit through several ways that include:

  1. Obtaining financing for the purchase of a home under the affordable housing scheme, at an interest rate of up to 7%per annum on a reducing balance basis (or other rate gazetted by NHC from time to time). The financing is available on the application and satisfaction of the set criteria.
  2. For employees who cannot qualify for affordable housing, transferring their benefits to a pension scheme or to a person registered in the affordable housing scheme or their spouse or children.
  3. Through cash distributions.

 Affordable Housing Relief

Under the Income Tax Act, any Kenyan resident making the said contribution and who has applied for a house under the affordable housing scheme is entitled to a tax relief equal to 15% of the gross salary up to Kshs. 108,000 per annum. Therefore, when computing the tax payable by the contributor, the said relief is deducted from the gross tax computed hence lowering the tax liability of the contributor. However, a contributor who has been allocated a house under the affordable housing scheme and who has enjoyed the affordable housing relief is not be eligible for a similar relief in any subsequent purchase of a house under the affordable housing scheme.

Offences and Penalties for Contravention

The Regulations further prescribe various offences and penalties for non-compliance. For instance, it is an offense under the Regulations for an employer to fail to register with the Fund, to make contributions and/or to keep proper records.

Challenge to the Implementation of the Levy

Notably, in September 2018, the Central Organization of Trade Unions (COTU) filed a suit challenging the implementation of the housing levy which was to take effect on January 1, 2019. The court issued orders stopping the implementation until the case is determined. The matter is scheduled to be heard in court on 26th February 2019. However, as at the date of this publication, reports in the media indicated that the Government had reached an agreement with COTU and parties had agreed that the case would be withdrawn to pave way for the implementation of the levy.

Article by Judy Marindany & Audrey Seur

Disclaimer

This article is intended for general knowledge only. For substantive legal advice on this, please contact the authors through the following addresses: This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it..

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