News FlashesApril 3, 2024

News Flash 28 March 2024 – KENYA – Affordable Housing Act signed into law

It is important that employers note the following:

Affordable Housing Levy to proceed
The Affordable Housing Act, 2024 was signed into law by the President of Kenya on 19 March 2024. Accordingly, sections 4 and 5 of the Act, which deal with the imposition of the levy and deductions by employers, became effective on the day of assent. The remaining sections of the Act will follow suit through a notification published in the Gazette.

Following the High Court’s ruling on 28 November 2023 that the affordable housing levy introduced by the Finance Act, 2023 was illegal, a record lawmaking process ensued which culminated in the passing of this Act.

The levy was declared unlawful by the High Court on the grounds that the Finance Act of 2023:
• Did not specify how the levy would be used after it was collected, or how it would help the national government’s housing policy role;
• Was discriminatory because the levy would only apply to those who were employed; and
• Lacked a legal structure to control its implementation and management.

Provisions of the Act that took effect on 19 March 2024:
• Salaried employees will be subject to the housing levy at a rate of 1.5% of their gross salary with a matching contribution from the employer.
• Employer’s contribution to the Affordable Housing Levy is an allowable deduction as per the provisions of Section 15 of the Income Tax Act (ITA).
• To clarify what is meant by gross salary, the Kenya Revenue Authority (KRA) released a statement which states that gross salary includes regular cash payments such as home allowance, travel allowance, basic salary and cash allowances.
• Consequently, in calculating the housing levy owed, non-recurring cash payments such as bonuses, gratuities, pensions, severance pay, leave allowances and other terminal dues and benefits are not included in gross pay.
• Both salaried and non-salaried individuals are now required to pay the levy. Non-salaried individuals are brought into the net by Section 4(2)(b).
• This clause will result in the implementation of the housing levy at the rate of 1.5% of the gross income of unemployed or non-salaried individuals. Initially only salaried individuals were subject to the housing levy, as stipulated in the Finance Act of 2023. As a result, the High Court ruled that the levy was illegal due to its discriminatory nature.
• The levy that was deducted must be remitted by the 9th day of the month that follows the month in which the gross income or gross salary was earned.
• Furthermore, employers are required by Section 5(1) of the Act to withhold and return the levy on behalf of the employees.
• The KRA’s commissioner-general is referred to as the collector of the levy under Section 2 of the Act.

To view the Affordable Housing Act, 2024, follow the link.

In addition, to view the public notice published by the KRA on 21 March 2024, follow the link.

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