State tables Bill in Parliament to salvage housing tax

The government has tabled a Bill in Parliament that seeks to entrench the controversial housing levy in law in a bid to avert a possible revocation by the courts.

Majority Leader Kimani Ichung’wah on Thursday tabled the Affordable Housing Bill 2023, weeks after the High Court declared the levy charged at 1.5 percent of the gross salary of an employee unconstitutional.

Read: Housing levy hits Sh12bn in the first three months

A three-judge Bench last month declared the housing levy unconstitutional for being discriminatory and creating unequal principles, dealing a blow to President William Ruto’s housing programme.

The judges said the government had failed to explain the imposition of the levy or a legal framework to anchor the tax, contrary to the constitutional requirement that the enactment of laws must be supported with a rational explanation.

“The principle of this Bill is to provide a legal framework for the establishment of the Affordable Housing Fund, access to affordable housing and in particular, give effect…on the right to accessible and adequate housing,” Mr Ichung’wah says in the Bill’s memorandum.

The court’s decision had set the stage for revocation of the levy whose collection started in July amid public outrage over its implications on the operational costs of businesses.

But the judges suspended the ruling, a decision that allows the government to continue collecting the levy until January 10, 2024, when a final ruling will be issued.

Employers match the contributions of their workers, a requirement that has significantly increased operational costs.

Contributions under the Housing Development Levy are expected to soar by 40.8 percent to hit Sh89 billion in the 2026/27 financial year, up from Sh63.2 billion in the current fiscal cycle.

Estimates from the draft Budget Review and Outlook Paper show the contributions will stand at Sh70 billion in the 2024/25 fiscal year and Sh78 billion in the financial year 2025/26.

The government is betting on the collections to finance affordable housing, associated social and physical infrastructure as well as affordable home financing. The Bill says 36 percent of the collections will be for the developing and upgrading of institutional houses approved by the Cabinet.

The National Housing Corporation will take 30 percent of the funds to develop and upgrade affordable houses while a further 30 percent will be used to upgrade slums and maintain the units.

Read: Housing levy cash to hit Sh89 billion in next four years

The levy is expected to be deployed in the development of affordable housing and associated social and physical infrastructure and affordable home financing.

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