October 2023
Employment Tax
Impact High
Summary
The Kenyan Affordable Housing Levy (AHL) is a mandatory levy first introduced via Finance Bill 2023. This is a levy designed and intended to help the government of Kenya build affordable houses for the venerable in society. The levy’s initial proposal was a 3% combined contribution by both employee and employer (capped at KES 5,000 per month). However, this was later amended by the Finance Act, 2023 (the Act) and assented by the president bringing with it a raft of changes to include:
• The employee contribution was fixed at 1.5% on the employee’s monthly gross earnings.
• The Act required that the employer matches up 1.5% of the employee’s contribution.
• The KES 5,000 capping was dropped.
In its nature the Finance Act, 2023 effective 1 July 2023 had some contentious clauses forcing stakeholders to seek the courts injunction in the implementation. While court’s pronouncement itself on this matter, it only delayed implementation while the effective date remained as 1st July 2023. The government sought for the lifting of the suspension and the Court of Appeal lifted the suspension conservatory orders on 28 July 2023.
The Detail
This Act introducing the AHL amended the Kenya Employment Act, 2007 by introducing a new Section 31B. Though currently the implementation is being carried by the Kenya Revenue Authority (KRA) any recourse on the AHL will be via the Employment Act and not tax legislation. Considering the above, the KRA under the Public Notice dated 3rd August 2023 was officially appointed to be the collecting Agent of the AHL.
Section 31C of the Employment Act provides that all employers are obligated under this Act to collect and remit the levy together with other statutory deductions to the KRA by the 9th of the month following the payroll month. Section 31C(2) imposes a 2% monthly penalty on the amount due until the levy is paid up.
The KRA through a public notice has provided guidelines and clarifications on some of the unclear terms e.g., what will constitute “gross salary”. They have termed “gross salary” to include base salary and all regularly (determined intervals- quarterly/half yearly) paid cash allowances. However, they have exempted one off payment including leave allowance, bonus, gratuity, pension, severance pay or any other terminal dues and benefits.
It is interesting that individual taxpayers who should ordinarily qualify for a relief under Section 30A of the Income Tax Act Cap. 470 are not eligible to such relief under the new Section 31B of the Employment Act.
What this means
The introduction of AHL has brought significant changes to payroll tax compliance requirements including a reduction on employee take home pay.
The housing levy is an irrevocable fund, and neither is it transferrable nor cannot be cashed.
The individual’s eligibility for this housing program are those Kenyans with a monthly income of below KES 150,000, this therefore discriminates against those contributing more to the fund.
Whilst the Court of Appeal lifted the conservatory orders suspending the implementation of the Finance Act 2023, to enable the government access funding, there is still a substantive case in court challenging the constitutionality of the Finance Act, 2023. This case will continue at the High Court until a final determination is reached.
Contact us
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
• Andrew Ondieki, Director | andrew.ondieki@vialtopartners.com
• Kennedy Kyalo, Senior Manager | kennedy.kyalo@vialtopartners.com
• Boaz Okeyo, Manager | boaz.okeyo@vialtopartners.com
Further information on Vialto Partners can be found here: www.vialtopartners.com
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