Uncertainty clouds 7pc interest on housing levy

Wednesday, June 7th, 2023 04:54 | By
Uncertainty clouds 7pc interest on housing levy
Housing deficit increases even as State Department says it has tarted a programme of putting 200 house units in every constituency. PHOTO/Courtesy

Kenyans contributing to the compulsory 3 per cent Housing Levy will not be guaranteed any interest payment on the with-drawable amount after seven years should the proposal contained in the Finance Bill 2023 get ratified.

The fears come even as the government considers putting an interest rate of 7 per cent on the amount a beneficiary would have saved but decides to withdraw instead of investing it in the affordable housing programme. When appearing before the Finance and National Planning Committee yesterday, Housing Principal Secretary (PS) Charles Hinga said that the interest payable will be based on the performance of the Fund, signalling concerns over the uptake of the proposed levy.

Realigning legal hitches

“There are very few schemes that will ever give you a guaranteed return. Those who attempted that went down with people’s money. We will get an aspiration return of 7 per cent, but it is subjected to performance of the Fund. It is not a guaranteed return,” said Hinga.

The proposed House Levy has been shrouded with grey areas, especially around the legal hitches, regulations, and the custody of the Fund. Except the Capital Market, all the public and private institutions involved in the public participation of the Finance Bill, have objected the Levy. 

Hinga asked the Kuria Kimani-led Committee to aid in realigning all the legal hitches which could derail the implementation of the levy that has elicited sharp criticism from policymakers and citizens.

Parliament will, for instance, be required to amend the Housing Act, Employment Act, and Housing Fund Regulation 2022 which all touches on the sourcing and operationalisation of funds to deliver affordable houses.

First established in 2018 through the Finance Act, the Housing Fund is managed by the National Housing Corporation (NHC) which was tasked to raise funds from various sources but not through statuary deduction on employees’ payslips as proposed by the current administration.

“We will ask the committee to consider these amendments to cure a couple of challenges. We want to make this process less painful. We are willing to withdraw the taxes (on contributions) after consultation” said Hinga.

Parallel housing scheme

Touted as a solution to the housing crisis in the country, the Fund is part of President William Ruto’s plan to deliver 250,000 affordable houses annually. 

The housing Levy is, however, set to hit hard low-income earners who are the majority compared to those with fat paychecks since the contribution is capped at Sh2500. Nabbing the informal sector into the tax bracket and the Housing Levy is still a big headache for the government.

With the employers also expected to match this contribution, the government will be compelled to revise its 2023/24 Sh3.59 trillion budget to cater for civil servants, which was previously not factored in the budget policy statement.

If implemented, the Fund could also subject civil servants to a parallel housing scheme, raising more questions on the logic behind the compulsory affordable housing programme.

Under the Public Service Superannuation Scheme (PSSS) Act that came into force in 2021, workers are deducted 7.5 per cent from their monthly take-home salary and can access up to 40 per cent of their pension contribution to build houses after at least five years of service.

While the government is also expected to match the 7.5 per cent PSSS contribution, the Kenya Union of Post-Primary Education Teachers (KUPPET) revealed to the Committee that the government has not honoured this obligation for the past eight months despite mooting a near-similar fresh housing scheme.  

PS Hinga, who describes the levy as a “sweetener to the employees” had previously told the committee that the State Department has already started a programme of putting 200 house units in every constituency which translates to 58, 000 units annually.

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