16 April 2019

Kenya: Employers, Employees to Start Paying 1.5% Levy for Housing Fund in May

Photo: Salaton Njau/The East African
One of the Kenya National Housing Corporation projects in Ngara, Nairobi (file photo).

Nairobi — Employers will be required to deduct 1.5 percent of an employees salary towards the Housing Fund by the 9th of every month starting on May 2019.

A notice by the Principal Secretary Housing and Urban Development Charles Hinga states that the employer will also contribute 1.5 percent for each employee.

"Both the employer and the employee shall each contribute 1.5% of the employee's month basic salary, provided that the sum of the total monthly contributions shall not exceed five thousand shillings," states the directive that came into effect after it was added in the Finance Act 2019.

"The employers are required to deduct and remit the levy together with other statutory levies from both the employer and employee by the 9th of each succeeding month together with other payroll statutory deductions."

The Housing Fund Levy is designed to finance the Affordable Housing Scheme under the Big 4 Agenda with Employers are expected to submit the deductions to the National Housing Development Fund (NHDF) every month.

KPMG Kenya tax partner Peter Karanja explained that 2.4 million Kenyans who earn below Sh100,000 per month are eligible for a mortgage under the affordable housing scheme, leaving out 77,000 high-earning employees who nevertheless will make the monthly contributions.

"Based on the 2017 Statistical Index from the Kenya National Bureau of Statistics, the country's wage bill in 2016 was Sh1.6 trillion. This means that the government can potentially collect Sh48 billion annually from the levy. Of this, Sh24Billion is collections from the employers which goes to subsidise affordable housing while the balance is contributors' funds which will go towards the cost of the house or is refundable at the end of 15 years," said Karanja.

In case of ineligibility for a home under the scheme, a contributor's levy can be transferred to a pension scheme, to another person under the affordable housing scheme or cash out after exit.

Failure to remit the contributions on time attracts a penalty of 5 percent of the contributions payable by the employer for each month or part thereof that the amounts remain unpaid.

The contributions are set to deliver President Uhuru Kenyatta's ambitious Big Four Agenda which promises to deliver 500,000 houses in five years among other promises.

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