No housing levy refunds in revised President Ruto tax plan

Workers could lose money in the controversial housing fund if parliament approves a new motion to scrap a clause requiring the state to offer refunds to shareholders who lose their affordable homes after seven years.

The Finance and Planning Committee in the National Assembly recommended amending the Finance Bill for the year 2023 to convert the housing fund into a tax, which effectively means that the money will not be refunded after it is collected.

“Recognizing this and the objections raised by the shareholders, the committee agreed to amend the proposal regarding the housing fund by making it a tax rather than a contribution so that the funds could be allocated directly to fund the housing initiative under the ‘bottom-up’ economic transformation agenda,” said the Chairwoman of the Finance and Planning Committee, Korea Kimani.

“In response to stakeholder submissions, the rate has been reduced to a manageable rate of 1.5 percent.”

Principal Secretary of Housing and Urban Development Charles Hinga said he was waiting for the report from the committee.

is reading: President Ruto has set the housing tax at 3 percent of the base wage

“I am waiting to see the proposal because this is not part of the executive power,” Mr. Hinga said. But Nikhil Hira, a tax expert, pointed out that in the Finance Bill, workers had to contribute to a fund “where if you don’t need an affordable home, your money will get interest for seven years”.

“Now, they say audibly, there will be no financing, so you will not earn any interest on it, you just give it to the government,” Nikhil said.

None of the current fees in Kenya can be refunded to the taxpayer after collection, as they are directed to a particular use.

They include export tax, railway development tax, road maintenance tax, and anti-fraud tax.

The housing contribution, which had earlier been capped at 2,500 shillings, and met by employers, would now go directly into the government’s bank accounts rather than the fund.

In the Finance Bill, the shareholders who missed their homes were supposed to get their money back in seven years at interest.

Mr Kimani did not respond to our inquiry as to whether the proposed conversion meant the rebate was now converted to tax, which would not be refunded.

Government officials, including President William Ruto, have insisted that the affordable housing deduction is not a tax but a contribution similar to that made to the National Social Security Fund (NSSF).

To appease taxpayers, the parliamentary committee reduced the contribution from the proposed 3.0 percent to 1.5 percent, but turned it into a tax, which will now be collected by the Kenya Revenue Authority (KRA) along with other fees.

News of the housing fund cutback began to emerge on Monday after a meeting of the parliamentary group of the UDA party, the largest party in Kenya’s ruling Kwanzaa coalition.

Dr. Ruto’s administration wants to build homes as part of his bottom-up economic model, arguing that it will provide homes for those living in slums and create jobs by building 250,000 homes annually.

However, critics say the contribution would reduce the take-home pay of employees who are already grappling with inflationary pressures.

It is not clear whether the proposed amendment would also affect the maximum contribution per employee of Sh2,500.

Employers must match the contributions of their employees.

Kimani said the committee lowered the cap, too. “Those who earn more were paid a lower percentage than those who earn less,” Kimani said.

The government intends to raise an additional Sh211 billion in revenue through the various changes in tax policy contained in the Finance Act, 2023, in one of its most ambitious revenue raising plans.

The extra revenue proposed by the Treasury is more than four times what the government had in the Finance Act 2022, reflecting Kenya’s Kwanzaa administration’s intensified efforts to bridge the budget gap.

is reading: Chief whip hints at amending housing fund proposals

Last year, the government of then President Uhuru Kenyatta came up with tax measures that sought to generate an additional fiscal 50.4 billion shillings into national coffers.

The bulk of the additional revenue, around Sh50 billion, is expected to come from Value Added Tax (VAT) on fuel after the government proposed to increase the tax head on petroleum products from the current 8% to 16%.

On Tuesday, the Finance and Planning Committee approved the proposed increase in value-added tax, noting that while the increase would raise the cost of living, the negative impact of retaining the eight percent sales tax would outweigh the positive.

“The government will lose because the oil companies become permanent creditors, which then affects the quality of service provision by the government to the citizens. Therefore, this calls for an end to the subsidized rate of eight percent,” said Mr. Kimani.

A new World Bank report indicates that although the tax proposals will help the country reduce its borrowing, it will raise the cost of living for households in the medium term.

Proposed changes to the Finance Act include the introduction of a digital service tax of 15 percent for digital content creators, with the committee recommending that the rate be reduced to three percent.

There is also an improved sales tax of three percent on small businesses making sales of 389 shillings a day (500,000 shillings), which MPs want to keep at 1 million shillings.

Employees earning a monthly basic salary of more than Ksh500,000 will be paid 35 percent of the current 30 percent.

The tax charge on fees levied on money transfer services such as Safaricom’s M-Pesa has also been increased from 12 percent to 15 percent, prompting fears that the country’s progress on financial inclusion is reversing.

The government has argued that it wants to collect more revenue as part of fiscal consolidation to reduce its appetite for borrowing.

→ (email protected)