Nairobi — Employee allowances will now be included in housing tax deductions following a new directive from the Kenya Revenue Authority (KRA).

KRA yesterday directed employers to factor in staff allowances when calculating final taxes for houses.

Such allowances were not included in the 2023 draft Finance Bill for the new housing tax law.

"Gross monthly salary" constitutes basic salary and regular cash allowances," KRA said.

"This include housing, travel or commuter, car allowances and such regular cash payments and would exclude those that are non-cash as well as those not paid regularly such as leave allowance, bonus, gratuity, pension, severance pay or any other terminal dues and benefits."

In June, the National Assembly ratified the controversial Finance Bill of 2023, which sought to introduce a three percent housing tax on employers and employees.

While employees were to be deducted 1.5 percent from their salaries to fund housing programs, employers were to match the amount.

Tax on gross pay means that the taxman will net more money to actualize its ambitious housing project.

Government and private top officials who earn thousands of shillings through allowances will bear the full brunt of the new order.

"All employees irrespective of their contract of service shall pay the affordable housing levy," KRA said.

"Taxpayers paying housing levy under Section 31B of the Employment Act are not eligible for Affordable Housing Relief under the Section 30A of the Income Tax Act Cap. 470."