Introduction
(The Housing Fund Regulations are subject to a court case filed by Kenya Federation of Employers. That notwithstanding let’s dive into the regulations to see what they were all about).
The draft Housing Fund Regulations, 2018 were released on 5th November, 2018 for public deliberations and input.
Kenya had plans to raise as much as KES 55 billion an equivalent of ($545 million) for FY 2018/2019 for an affordable-housing fund through a new tax, helping the state to finance 500,000 new low-income units promised by President Uhuru Kenyatta- Bloomberg. The year was over and the regulations were never implemented.
The government was planning to introduce a 1.5 % tax for both workers and employers in the fiscal year that began in July to fund the housing
Only 2 percent of the 50,000 houses built in the country each year are targeted at those on lower incomes
– Charles Hinga, PS Housing.
Kenya has a shortfall of 2 million units and needs to construct 300,000 houses annually to plug the deficit, according to Carlos Felipe Jaramillo, the country director for the World Bank.
Historically, high land prices were the biggest cause of inflated housing costs, leaving only 18 percent of the population owning homes in urban areas, according to the Kenya Bankers Association.
“Nairobi has the most expensive land in Africa,” Hinga said. “And this is because we don’t have enough serviced land and also there is a lot of land that is going from one hand to another for speculative purposes.”
Who is eligible to register?
- All employers and employees are required to register with the Fund and make monthly levy contributions;
- The regulations also provide for voluntary membership for self-employed persons;
- We note that the regulations do not provide any exemptions for foreign nationals working in Kenya for a short period of time. We hope that this can be rectified before the regulations are enacted.
What are the contribution rates?
- Employers and employees will each contribute 1.5% of the employee’s monthly basic salary to the Fund with the combined contribution capped at KES 5,000 per month,” Kenya Finance Act 2018.
- Voluntary members (self-employed persons) are required to contribute a minimum if KES 200 per month, with Ksh. 100 going towards the Fund’s maintenance costs and the other Ksh. 100 being member’s actual contribution.
- We note that, the members contribution towards Fund’s operations may discourage voluntary membership; this also creates inequity since employed people are not required to cater for operations.
What are the Categories of affordable housing schemes?
|
No. |
Category of Income (Per Month) |
Housing Scheme |
| 1 |
Less than KES 14,999 |
social housing |
| 2 |
Between KES 15,000 and KES 49,999 |
Low Cost Housing |
| 3 |
Between KES 50,000 and KES 100,000 |
Mortgage gap housing |
What are the qualifications for Affordable Housing?
- a) Be a Kenyan citizen aged 18 years and above;
- b) Have proof of registration with the scheme;
- c) Have proof of remittance/contributions to the scheme; and
- d) Be a first time owner under the affordable housing scheme.
It is not clear what happens if a member moves from one category to another due to receiving salary increments over time.
The CS and his team should resolve these issues before the regulations are enacted.
Contributor benefits from the scheme
- The contributor permit individuals to access their contributions after five years of making uninterrupted contributions provided that they are solely applied to offsetting housing loans, security for mortgages or housing development.
- Members who do not qualify for the affordable housing scheme can withdraw their contributions after 15 years of making contributions or upon retirement whichever comes earlier;
- At that point the contributor may transfer his/her contributions to a pension scheme, spouse or dependent children or to another person eligible for affordable housing or withdraw as cash and be subjected to tax.
Consequences of Non-Compliance
- The employer shall remit both employee and employer contributions to the Fund before the 9th day of the following month.
- Failure, neglect or refusal of an employer to register with the Fund attracts imprisonment for two years or fine of not more than KES 10,000 or both.
- Failure or neglect or refusal of an employer to make contributions :– same as above.
- Failure of an employer to keep proper up-to-date records for a period not exceeding 10 years :– same penalty as above.
- Misappropriation of funds or assets of the Fund:- same as above
Consequences of Non-Compliance …
- It’s outrageous that the fine and prison sentence for misappropriation of funds or assets of the fund are pegged at the same level as that of an employer who fails to keep proper records when the offenses are not comparable.
- A fine of KES 10,000 is unlikely to be an effective deterrent against embezzlement of funds.
Any tax incentives for contributors?
- A resident person who has applied for housing under the affordable housing scheme and is waiting allocation is entitled to a relief equal to 15% of the gross emoluments up to KES 108,000 per annum. The tax relief will ease the burden of PAYE on eligible employees;
- Resident persons who have been allocated a house are not eligible for affordable housing relief even though they are required to contribute to the Fund;
- For those who earn over 100,000 and those who are not first time home owners may suffer from double taxation; (during contribution and at withdrawal);
Any tax incentives for contributors?
- A resident person who has applied for housing under the affordable housing scheme and is waiting allocation is entitled to a relief equal to 15% of the gross emoluments up to KES 108,000 pa. The tax relief will ease the burden of PAYE on eligible employees;
- Resident persons who have been allocated a house are not eligible for affordable housing relief even though they are required to contribute to the Fund;
- For those who earn over KES 100,000 and those who are not first time home owners may suffer from double taxation; (during contribution and at withdrawal);
Source
Kenya Law, The Housing Fund Regulations, 2018
