Disclaimer: This newsflash is based on a copy of the Affordable Housing Act, 2024, available in general circulation, which has not yet been confirmed as the copy assented to by the President. We wait to receive the version published in the Kenya Gazette.

On 19 March 2024, the President signed into law the Affordable Housing Act, 2024 (Act). The enactment of this Act is the culmination of a record lawmaking process following the High Court Ruling on 28 November 2023 that rendered the affordable housing levy as introduced by the Finance Act, 2023, unconstitutional.

The High Court had rendered the levy unconstitutional on the basis that the Finance Act, 2023:

• did not set out how the levy would be administered once collected;
• did not set out how the levy supports the housing policy function of the National Government;
• was discriminatory since only employed people would bear the burden; and
• did not provide a legal framework to govern the imposition and administration of the levy.

The Act introduces the affordable housing levy at the rate of 1.5% on the gross salary of an employee with a matching contribution from the employer. In addition, persons not in employment but in business are required to pay the levy at the rate of 1.5% of their gross income. The effective date of the provisions of the Act relating to the payment of the levy is 19 March 2024.

The levy is required to be paid by the ninth working day after the end of the month following that in which the gross salary or gross income was accrued or received. A penalty of 3% will apply for each month that the levy remains unpaid. The Commissioner General of the Kenya Revenue Authority is the designated collector of the levy.

The levy together with other monies paid into the Affordable Housing Fund will be managed by the Affordable Housing Board.

It is noteworthy that a number of petitions have already been filed at the High Court of Kenya challenging the constitutionality of the Act. We understand that grounds relied on in the petitions include (amongst others) that the Act threatens the sharing of functions between the national and county governments since housing is a county government function, the levy was rejected by a majority during the public participation process hence the Act is a blatant dismissal of the results of the public participation process and that the levy imposes overbearing obligations on Kenyans.

On the mention of one of the petitions on 20 March 2024, the High Court did not however issue conservatory orders stopping the implementation of the Act but instead gave directions for the filing of responses to the petition and for parties to highlight their submissions on 16 May 2024.

Accordingly, employers and taxpayers should note to deduct and remit the levy from the end of this month, March 2024.

Our detailed analysis of the Affordable Housing Act, 2024 is contained herein.

The Act:

• establishes the affordable housing levy (Levy) to be imposed at the rate of:
  • 1.5% of the gross salary of an employee with a matching contribution being made by the employer; and
  • 1.5% of the gross income for persons earning income (other than employment income).

This provision took effect on the date of assent of the Act (19 March 2024) hence, employers will be required to deduct and remit the Levy beginning March 2024:

• designates the Commissioner General of the Kenya Revenue Authority (KRA) as the collector of the Levy;
• provides that the Levy will be payable by the ninth working day after the end of the month following that in which the gross salary or gross income was accrued or received. The Act does not define a working day hence this may be open to wide interpretation by different employers;
• imposes a penalty equal to 3% of the unpaid amount of the Levy for each month or part of the month that the Levy remains unpaid. The penalty will be recoverable summarily as a civil debt. This penalty is lower than the 5% late payment penalty that ordinarily applies for Pay as You Earn (PAYE);
• exempts employers, who have already deducted the Levy, matched contributions, and remitted both their contributions and those of their employees from additional Levy payments on their gross income;
• provides the following tax reliefs:
  • expenditure incurred by any person carrying on business in payment of the Levy will be a deductible expense for purposes of determining a person’s taxable income under the Income Tax Act, Chapter 470 of the Laws of Kenya (Income Tax Act); and
  • a resident individual who has paid the Levy in a year of income shall be entitled to the affordable housing relief when computing the individual’s taxable income under the Income Tax Act. The current affordable housing relief is currently 15% of the employee’s contribution subject to a cap of KES 108 000 per year.

• allows the Cabinet Secretary for the National Treasury, on the recommendation of the Cabinet Secretary responsible for affordable housing, to exempt any income, class of income, person, or category of persons from the Levy;
• provides that subject to meeting the criteria that will be set out in the regulations issued pursuant to the Act, a natural person will be eligible for the allocation of one affordable housing unit;
• establishes the Affordable Housing Fund, to which the Levy shall be paid and whose purpose shall include providing funds for the design, development and maintenance of affordable housing, institutional housing and associated social and physical infrastructure;
• provides that eligible persons will be allowed to make voluntary savings with the Affordable Housing Fund for purposes of raising the deposit necessary for the allocation of an affordable housing unit;
• requires the Cabinet Secretary responsible for affordable housing to table regulations within 30 days of commencement of the Act, that is by 19 April 2024, to provide for, among others, exemption criteria from the Levy, eligibility for allocation of affordable housing units, requirements for applying for and changing of affordable housing units, voluntary savings, and off-taking of affordable housing units;
• establishes the County Rural and Urban Affordable Housing Committee to develop the framework for the development of affordable housing within the county and to develop the affordable housing investment programme for the county; and
• makes transition provisions including:
  • previous affordable housing levy payments done under the Employment Act, 2007 pursuant to amendments made by the Finance Act 2023 will be deemed to have been paid under the Act;
  • ongoing affordable housing projects and programmes as well as commitments or obligations made by the national Government on affordable housing will be deemed as commenced under the Act; and
  • commitments or obligations made by the national government on affordable housing will be deemed as commenced under the Act.

Frequently asked questions

Who bears the Levy?

• For employed persons: The Levy will be borne by the employee. However, the employer will be responsible for deducting the Levy at 1.5% of the gross salary of an employee(s) salaries with matching contribution(s) by the employer(s) by the ninth working day of the month following that in which the gross salary is accrued or received.
• For all other persons earning income (other than employment income): The person earning the income would be required to remit 1.5% of their gross income to the collector, by the ninth working day of the month following that in which the gross income is accrued or received.

What is the penalty for non-payment or late payment of the Levy?

3% penalty per month on the unpaid amount of the Levy, which would be recoverable as a civil debt.

What is an ‘affordable housing unit’?

Pursuant to the Act, an affordable housing unit refers to:

• A social housing unit – a house targeted to a person whose monthly income is below KES 20 000 per month.
• An affordable housing unit – a house targeted at a person whose monthly income is between KES 20 000 and KES 149 000 per month.
• An affordable middle-class housing unit – middle to high-income housing targeted at persons whose monthly income is over KES 149 000 per month.
• A rural affordable housing unit – a house targeted at a person living in any area which is not an urban area.

What are the tax reliefs for Levy payments?

• Expenditure incurred by a person carrying on business in payment of the Levy will be deductible in computing the taxable income of such a person in a year of income.
• A resident individual who can prove that they have paid the Levy will be entitled to the affordable housing relief in that year of income. The affordable housing relief is currently 15% of the employee’s contribution subject to a cap of KES 108 000 per year.

What is the status of previous Levy payments?

• Previous Levy payments under the Employment Act, 2007 introduced by the provisions of the Finance Act 2023 and which provisions were declared unconstitutional will be deemed to have been paid under the Act.
• Previously ongoing affordable housing projects and programmes by the Government will be transitioned to be under the Act.

What is the Affordable Housing Fund?

• The Act establishes the Affordable Housing Fund (Fund) into which the Levy, monies appropriated by the National Assembly, gifts and grants, voluntary contributions, investments made by the Fund, loans approved by the Cabinet Secretary in charge of the National Treasury and other incomes will be paid.
• The purpose of the Fund is to provide funds for the development of affordable housing and associated social and physical infrastructure.

What is the role of the Affordable Housing Board?

• The Board will be responsible for overseeing the development of affordable housing, institutional housing and associated social and physical infrastructure in Kenya.
• The Board shall among other things co-ordinate the optimal utilisation of the Fund in the implementation of programmes and projects relating to the development of affordable housing and institutional housing and associated social and physical infrastructure.

The following issues will be covered in the Regulations to be made pursuant to the Act:

• The criteria for eligibility of allocation of an affordable housing unit.
• The identification documents to be provided and the requisite deposit to be made when making an application for housing.
• Regulations on implementation of the affordable housing scheme and development of institutional housing scheme.
• The criteria for change of an affordable housing unit.
• Provisions on voluntary savings and off-take of affordable housing units.
• Inclusivity and diversity within affordable housing schemes.
• Typology and dimensions for affordable housing units relative to the incomes of the individual applicants.
• The interest rate or administration fee for a loan issued from the Affordable Housing Fund for purposes of acquiring an affordable housing unit.
• Criteria for eligibility of allocation of a low-interest mortgage for an affordable housing unit.