This alert brings to your attention the Affordable Housing Bill, 2023 (the Bill) as stipulated in the Finance Act, 2023 (the Finance Act). The Finance Act had amended the Employment Act, 2007 by inserting new sections on Affordable Housing Levy (AHL) requiring both employees and employers to each pay monthly AHL equivalent to 1.5% of the employee’s gross salary.
However, the AHL was declared unconstitutional by the High Court citing discrimination, as one of the reasons, as the levy was only to be collected from employees in a formal employment with pay slips. The court found that this flouted the principle of equity in taxation and did not comply with Article 201 (b)(i) of the Constitution which encourages creation of a broad-based, efficient and fair tax system. The court declared that the exclusion of all non-formal income earners in supporting the AHL without a clear justification is unfair, discriminatory, irrational and arbitrary, and in violation of Articles 27 and 201(b)(i) of the Constitution.
Another issue that the bench addressed was on whom would collect the levy. The Cabinet Secretary for Lands, Public Works, Housing and Urban Development purported to authorise collection of the levy by the Kenya Revenue Authority (KRA) vide a public notice dated 03 August 2023, but this directive was rejected by the bench as the authority to collect vests with the Cabinet Secretary for National Treasury and Economic Planning. This directive was also quashed on the basis that the AHL is not a deduction for which KRA is mandated to make collections on according to the First Schedule of the Kenya Revenue Authority Act, 1995 (the KRA Act).
On 07 December 2023 the Bill was presented before Parliament for consideration to remedy the unconstitutionality cited by the three-judge bench.
The Bill provides that the Cabinet Secretary for Lands, Public Works, Housing and Urban Development will be responsible for matters relating to affordable housing for the time being and the “Collector” of the levy shall be the Commissioner General of the KRA appointed under Section 11(1) of the KRA Act, or any other person as appointed by the Cabinet Secretary for Lands, Public Works, Housing and Urban Development. The Bill further proposes that all contributors shall remit the AHL to the Collector no later than the ninth working day at the end of the month in which the gross salary was due.
The issue of discrimination is addressed by Section 4, Paragraph 2(b) of the Bill, which provides that the 1.5% AHL will not only be collected from employees in formal employment but will also be applicable to the gross income of a person received, out of formal employment.
The three-judge High Court bench also challenged the legal framework underpinning the AHL as Section 7 of the Housing Act, which established National Housing Development Fund (NHDF), did not reference the AHL as a source of funds. Further, Section 84 of the Finance Act did not show any connection between the AHL and the NHDF. To remedy this, Part III of the Bill has established the Affordable Housing Fund to provide for the organisation as well as the management and operationalisation of the Fund. It further provides on the administration of the funds once collected by the Commissioner General of the KRA.
The Bill also addresses the question of the beneficiaries of the affordable housing units and how to identify them in Part IV that provides for the eligibility criteria and the application procedure for the affordable housing units. A person qualifies to be allocated an affordable housing unit if that person is a Kenyan citizen who is at least eighteen years of age and holds a Kenyan identity card. One shall make an application to the National Housing Corporation in a manner specified by the agency and the application shall be accompanied by:
Proof of requisite deposit approved by the relevant agency of at least 10% of the value of the affordable housing unit being applied for;
A copy of the national identity card;
A copy of the Kenya Revenue Authority personal identification number certificate; and
Such other information as may be determined by the relevant agency.
The Bill finally proposes that the penalty for non-compliance by an employer to be 3% of the unpaid amount for each month it remains unpaid, which is up from 2% under the Finance Act. The Bill has also proposed that the penalty for misappropriation of the proceeds of the AHL to stand at Kenya Shillings 10,000,000 or a jail term not exceeding five years or both.