Unanswered questions in the new affordable housing law

President William Ruto lays a foundation stone for the construction of the Talai Affordable Housing Project in Kericho County. [PCS]

The lack of a definition of who a person is in the Affordable Housing Act, 2024, is among the key gaps legal practitioners have detailed in the new law that still does not sit well with Kenyans owing to numerous court battles.

Such gaps, including the unclear modalities of how the taxman is supposed to collect this levy from the informal sector, poke more holes in the Act that is already being contested in courts.

The Act also raises fears that some Kenyans may be taxed twice or more - as employees and owners of their side hustles. This is even as the law does not define clearly what gross income is.

While the Principal Secretary (PS) in the State Department for Housing and Urban Development Charles Hinga has exuded confidence in the Act, saying it has answered a lot of questions raised by the court cases, a keen look at it still raises more queries.

For example, while the PS insists that the mode of allocation of units will be based on one KRA PIN (Personal Identification Number), one unit; the Act has not explained who a person is.

The Act, unlike the Financial Act, of 2023, which had a caveat for those who will be allocated units, has left this mandate to the Affordable Housing Fund Board, which will later come up with regulations to dictate this.

 “Our view was to put a caveat of seven years but Parliament decided not to prescribe in the statute, but you cannot sell the unit without the permission of the board,” explained the PS during an interview with The Standard Group’s Spice FM.

 “I think in the regulations, they will sort of define the how,” he added.

Hinga argues that the units are highly subsidised hence beneficiaries should not be allowed to distort the market by selling them as soon as they acquire them.

However, while the PS is determined to ensure units are allocated based on one taxpayer one unit, the Act does not define who this taxpayer or a person, is.

This opens the loophole where someone can own a unit either as an individual through their KRA PIN or also acquire several through proxy companies registered with their own KRA PIN considering the law identifies a corporate as a person as well.

 This is a matter that has been raised as well by an audit by KPMG in their analysis of the Act. “With the lack of the definition of a person in the Affordable Housing Act, reference may be made to the interpretation and general Provisions Act, where a person is defined to include a corporate,” reads KPMG’s analysis of the Act in part.

The Interpretation and General Provisions Act defines a person to include a company, or association or body of persons, corporate or non-corporate.

 This loophole, coupled with the fact that the seven-year caveat that initially was in the Finance Act 2023 to deter premature resale of the property for profit which is now a prerogative of the Board, may cause jitters among potential homeowners.

Additionally, the Act has not defined gross salary or income.

Section 4 (2) of the Act states that the levy shall be at the rate of 1.5 per cent of (a) the gross salary of an employee or (b) the gross income of a person received or accrued which is not subject to the levy under paragraph (a).

 “This Act provides a well-defined framework for the Affordable Housing Levy when compared to the previous Affordable Housing Levy. However, it does not define the terms “gross salary” or “gross income”. 

If these terms are not well defined, the resultant ambiguity may result in over or under-deduction of the Affordable Housing Levy by employers or self-employed persons,” says RSM Global, a tax consulting firm.

 KPMG details that while the Act has specified that employers who remit an equivalent contribution will not be subjected to further deductions on their gross income as indicated in  Section 5(2), sole proprietorships and other entities that do not have employees will be exposed to higher tax on their gross income.

“Further, unless subsequently clarified there is a possibility that incomes such as interest, and dividends will be subject to tax as it will be difficult to know if the recipient has employees and has accounted for the levy on the employees,” KPMG says.

Even as the proponents of the Act argue that it has now roped in the informal sector unlike when it was being domiciled in the Finance Act, 2023, the Act still does not provide clear provisions on how Kenya Revenue Authority (KRA) will collect these monies.

PS Hinga, when asked this question during the interview, incessantly maintained that the mandate of collecting tax belongs to KRA.

“The responsibility of collecting taxes lies with KRA. KRA has made several attempts to deal with turnover tax and this is one of the things where KRA will follow the same path of turnover tax,” he said. “KRA must put in measures because there is a requirement for everybody to pay.”

This is the reason why KRA has been keen to implement the e-TIMS (Electronic Tax Invoice Management System) to ensure every person in the informal sector pays their fair share.

“We have noted that the Act does not provide how the levy will be collected from non-salaried persons. We, however, wait for regulations to provide deeper clarity and step-wise implementation of the Act,” reads an analysis by Grant Thornton, an accounting and tax consulting firm.

Gross salary

The Affordable Housing Act, of 2024, came into effect on March 19, 2024.

KRA subsequently released a notice stating that employers should deduct 1.5 per cent of the employee’s monthly gross salary and the same by the employer for remittance to the taxman by the ninth working day after the end of the month.

“All other persons who receive income or whose income is accrued in Kenya are required to remit 1.5 per cent of their gross income as the affordable Housing Levy to KRA,” read the notice providing no further instructions of how the taxman will get these levy from professions such as consultants and gig workers.

Considering the Act has left many questions unanswered, all eyes are now on Lands, Public Works, Housing and Urban Development Cabinet Secretary Alice Wahome who is expected to table regulations to the Act 30 days after it takes effect.

The regulations will among other things detail the eligibility of one being allocated an affordable housing unit, the powers of the board over one who desires to sell a unit after acquisition, the deposit required for acquiring a unit and the exemption from paying the levy.