Housing Levy: KRA Directs All Employers To Deduct Funds Accrued Effective July 1, 2023

• Ministry of Lands, Public Works, Housing and Development appointed Kenya Revenue Authority (KRA) as the Housing Levy collection agent
• KRA issued a directive to employers to collect the 1.5% housing tax missed in July 2023 and match the same in the August payroll
• The taxman called on employers to be compliant, failure to which they risk a 2% penalty of the of the unpaid funds

Kenyan workers will feel the heat in the August payslip following the introduction of the Housing Levy.

Kenya Revenue Authority (KRA) instructed employers to deduct the 1.5% housing tax accrued from July 1, 2023, as provided for in the Finance Act 2023.

This followed a ruling by the appellate court suspending stay orders on the Finance Act 2023, which gave KRA the green light to implement the new taxes.

How KRA will collect Housing Levy?

The taxman received a go-ahead from the Lands, Public Works, Housing and Urban Development Cabinet Secretary (CS) Zacharia Mwangi Njeru on Wednesday, August 3, to collect the housing levy.

"We would like to inform members of the public that with effect from July 1, 2023, all employers are required to deduct the Affordable Housing Levy from the employee’s gross salary and remit together with the employer’s contribution," said KRA.

The taxes to be remitted are 1.5% of the employee's gross monthly salary, matched with 1.5% of the employee's monthly gross salary by the employer.

Housing Levy penalty

The authority noted that employers should declare the housing tax under sheet 'M' of the PAYE return on iTax for compliance.

Any employer who fails to remit the levy risk paying up to 2% of the unpaid funds for every month 'if the same remains unpaid'.

"Employers' contribution to the Housing Levy is allowable under section 15 of the Income Tax Act. We are committed to ensuring optimal support to all employers as we engage relevant stakeholders to enhance compliance with the levy," the authority continued.

How much will employees/employers pay in Housing Levy?

For a person earning a gross salary KSh 50,000, the Housing Levy deduction for July and August 2023 amounts to KSh 1,500.

This means if his July 2023 net pay - minus the 1.5% housing tax - was KSh 40,841, the August net salary will drop to KSh 39,341 ( with other deductions -NHIF, PAYE and NSSF-factored).

According to a Citizen TV report on model payslips, a person earning a gross salary of 1 million will be required to pay the July Housing Levy of about KSh 15,000 plus the August 2023 tax, slashing pay to KSh 640,524.

KRA backdated all tax changes in Finance Act 2023

Employers will also be required to pay KSh 1,500 per employee during the same month under review, with KSh 750 covering up the missed July remittances.

Apart from the Housing Levy, Kenyans will be hit by other taxes backdated by the government in its quest to fund the over KSh 3.6 trillion budget.

The taxman advised its officers to prepare to implement the changes provided in the Finance Act 2023 following the court of appeal ruling.

KRA said all new tax changes should be effected based on the effective dates pronounced in the Act.