The 3 per cent housing levy contained in the Kenya Financial Bill 2023 has elicited howls of protests from Kenyans who feel the government is trying to burden them with more taxes. Notwithstanding the widespread disaffection, the government has continued to aggressively promote the tax (or levy as they call it) as critical to our social and economic development, raising fears that it is determined to impose it regardless of public opinion.
Leading from the front, the president, in a televised interview with journalists, passionately argued that the levy is a winning proposition for both contributors and beneficiaries and all patriotic Kenyans should support it. Giving examples of Singapore and China, the President argued that affordable housing projects have a positive multiplier effect on any economy as experience in these countries illustrates.
Secondly, he argued that conscientious Kenyans should willingly support government efforts to improve the quality of life of many families who live in deplorable informal settlements that are characterised by lack of running water and toilets.
Considering the slum dwellers are also taxpayers, the president contended that his government is duty bound to provide decent affordable houses since the private sector has failed to meet the needs of hustlers to date. Observing that Kenya's trajectory is towards further urbanisation, the president argued that Kenya has to invest in affordable houses now in order to avoid being swamped in future by mushrooming of inhospitable informal settlements.
In his third argument, the president sought to placate those opposed to additional salary deductions by arguing that the 3 per cent salary deduction is not really a tax but a savings scheme where contributors who do not want to buy houses will get their money back after seven years.
Moreover, besides the interest earned on the 3 per cent housing tax, contributors will in addition benefit from matching funds that will be contributed by employers.
Despite the president's enthusiasm and confidence in the merits of the affordable housing project, both employees and labour unions have loudly opposed the housing levy primarily because they feel workers are already overtaxed and their salaries have no room for an additional hit. Typically, many argue they already own homes or are servicing a mortgage and have other pressing priorities to be burdened with another deduction.
Besides feeling overburdened, many Kenyans are also sceptical of the government's ability to deliver on its promises given its poor track record in housing projects in the past. Critics are reminded that California Estate and Nyayo High Rise projects were also intended to upgrade the lives of the poor in Majengo and Kibera slums only to end up benefiting the rich and the well connected.
To add to historical reservations of government housing projects, it does not help that news reports from Mombasa claim that the poor were shortchanged in the Buxton Affordable Housing Project.
Although Kenyans are not ideological, many are also clearly resentful of attempts by the government to intrude in decisions that are the preserve of individual households. Many are outraged that the government wants to inject itself in private decisions of how to allocate their money to consumption, investment and savings. In a free society, such decisions are considered personal and the government has no business getting involved.
Similarly, the need to respect citizen choices applies to corporate entities too. The government cannot conscript the private sector into compulsory corporate social responsibility schemes in the name of affordable housing. Companies cannot be coerced to be sufficiently philanthropic in a democracy.
An imposition of an extra 3 per cent housing tax on corporate payroll will not only act as a disincentive to investment, it will also lead to layoffs given the high cost of doing business at the moment.
Having said this, we agree with the government that the housing project can be an effective economic stimulus whose multiplier effect can jump-start our economy and create employment. However, since volunteering workers to contribute to the housing fund cannot be achieved without violating citizen right to choose, the government should look for alternative ways of jump-starting the economy.
One way is to cut spending and reduce corruption to bring down interest rates to levels that do not crowd out the private sector. Accordingly, instead of setting a target to construct 200,000 houses per year, the government should aim to bring down interest rates from double to single digit figures of around 3 to 8 per cent.
Lowering interest rates should also give the economy the stimulus the government is looking for, sort out unemployment and create a housing boom that offers consumers the freedom to choose.
To play it's rightful role in this free market environment, the government should focus on constructing roads, water and sewerage systems in order to extend the economic benefits into the rural areas where such infrastructure is currently unavailable.
