Executive summary

The President of Kenya on 19 March 2024 assented into law the Affordable Housing Act, 2024 (the Act), which has immediate implications for employers. This follows the suspension by the High Court of Kenya of provisions providing for the deduction and remittance of affordable housing levy (the levy) as introduced through the Finance Act, 2023.

An employer is required to remit in respect of each employee the employer's contribution at 1.5% of the employee's monthly gross salary and the employee's contribution at 1.5% of the employee's monthly gross salary.

The provision providing for the deduction and remittance of the levy became effective on the date of assent.

Employers are thus expected to account for the levy in March 2024 payroll and going forward.

Detailed discussion

Affordable housing units

The Act provides for four categories of housing units and defines them as follows:

1. A social housing unit - means a house targeted to a person whose monthly income is below 20,000 Kenyan shillings (KES 20,000).
2. An affordable housing unit - means a house targeted at a person whose monthly income is between KES 20,000 and KES 149,000.
3. Affordable middle class housing unit - means middle- to high-income housing targeted at persons whose monthly income is over KES 149,000.
4. Rural affordable housing unit - means a house targeted at a person living in any area that is not an urban area.

Imposition of Affordable Housing Levy

The levy is a mandatory contribution that will be contributed by both the employer and employee. The employer is required to remit in respect of each employee both:

• The employer's contribution at 1.5% of the employee's monthly gross salary
• The employee's contribution at 1.5% of the employee's monthly gross salary

It is the responsibility of the employer to remit the levy by the ninth day of the following month.

The Act also incorporates non-salaried persons, who were not previously covered by the provisions that the High Court suspended. Non-salaried persons will be expected to make contributions of 1.5% of their gross income.

The Kenya Revenue Authority had previously clarified that gross monthly salary constitutes basic salary and regular cash allowances. The regular allowances include housing, travel or commuter and car allowances, as well as any regular cash payments but exclude non-cash payments as well as income not paid regularly, such as leave allowance, bonus, gratuity, pension, severance pay, or any other terminal dues and benefits.

Penalty

A 3% penalty on the unpaid amount shall be levied on persons who fail to remit the levy by the due date. Penalties shall accrue for each month or part thereof that the levy remains unpaid and shall be recovered as a civil debt for the person liable to remit the amount.

Affordable housing relief

Resident individuals who prove that they paid the affordable housing levy in a year of income shall be entitled to affordable housing relief for that year of income.

Effective 19 March 2024, the affordable housing relief shall be extended as per section 30A of the Income Tax Act. The amount of the relief shall be 15% of the employee's contribution but shall not exceed KES 108,000 per annum (KES 9,000 per month).

Exemption

The Cabinet secretary, through a gazette notice, may exempt from the levy any income or class of income or any person or category of persons.

At present there are no exemptions extended to any persons or any income other than the ones clarified above (non-cash benefits and income not paid regularly).