Affordable Housing levy

The 2023 Finance Act has brought changes to various tax legislations in Kenya. One of the biggest changes is the introduction of the Housing Levy, a mandatory contribution by employees. Learn how the levy works and what you need to know in this blog.

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The 2023 Finance Act has brought changes to various tax legislations in Kenya. One of the biggest changes is the introduction of the Housing Levy, a mandatory contribution by employees. Learn how the levy works and what you need to know.

The Finance Act was passed in June 2023 but was suspended due to legal challenges questioning its legality. The suspension was lifted later, then appealed.

The Act now stands and is in effect. The new levy has been implemented, and questions on compliance have arisen

Basic Salary

The Employment Act defines basic salary as gross salary less benefits and allowances.

Gross Salary

Deduce the definition of gross salary from basic salary definition as a sum of basic pay, benefits, and allowances.

Clarification

Gross salary is all employment service-related sums, benefits, and allowances paid to employees. It does not include reimbursements for payments on behalf of the employer.

The effective date for the Affordable Housing Levy is 1st July 2023.

The Affordable Housing Relief is yet to be associated with the Affordable Housing Levy, making it inapplicable.

Employers who are yet to pay their employees must subject the salary to the levy and remit it.

Employers who had already paid their staff without deductions should:

• Calculate PAYE and the Housing Levy based on the new rates.

• Remit the payments before August 9, 2023.

• Inform employees of the overpayment made in error in July 2023 salaries.

• Recover overpayments from August 2023 salaries or other installments.

• Ensure deductions do not exceed two-thirds of their employee’s wages.

Yes.

The new Affordable Housing Levy is mandatory and applies to all employees.

The Levy amounts to 1.5% of the gross monthly salary matched by 1.5% by the employer.

The Kenya Revenue Authority (KRA) collects the Levy together with the monthly Pay As You Earn (PAYE) return. Payments are due by the 9th of the following month.

Employers who fail to comply with the Levy risk a penalty of 2% of the unpaid amount for every month it remains unpaid.

Employers will declare the Housing Levy in the monthly Pay as You Earn (PAYE) return and remit it together with PAYE. All payments are due by the 9th day of the month following the month of deduction.

• Increased cost of living and reduced disposable income.

• Affordable homes available in the market will be beneficial for employees seeking accommodation.

• Increased operational costs

• Additional administrative burden

• A risk of penalties for non-compliance