Let’s explore the Affordable Housing Levy, a mandatory contribution that both employers and employees must make each month. This levy is set at a rate of 1.5% of the employees’ gross monthly salary for both employers and employees, with no maximum cap regardless of an employee’s earnings.
Now, you might be wondering if there is any relief that can reduce this levy. Unfortunately, the answer is no. However, there’s good news for those planning to buy a house under the Affordable Housing Scheme. The payments made for the scheme will be allowable as a relief against your income tax.
The process of remitting the housing levy is straightforward. The Kenya Revenue Authority (KRA) will collect the levy and include it in your monthly Pay As You Earn (PAYE) return. Employers must ensure to file and make payment on or before the 9th day of the following month. If an employer fails to comply with the provisions of the Affordable Housing Levy, shall be liable to payment of a penalty of two percent of the unpaid amount for every month the same remains unpaid.
The Finance Act 2022, which received Presidential assent on 26th June 2023, introduced several changes to tax legislation. While most changes became effective from 1st July 2023, some will come into effect on 1st September 2023 and 1st January 2024. However, the Act faced legal challenges, leading to its temporary suspension. The suspension was later lifted through a Court of Appeal ruling delivered on 28th July 2023.
This delay in the implementation of the Finance Act 2023 also saw a delay in the implementation of the Housing Levy. This delay has raised concerns for employers and employees, especially regarding the treatment of July 2023 salaries with respect to the Housing Levy and new PAYE bands.
Unfortunately, for employers who already remitted July 2023 salaries before the Court of Appeal ruling on the 28th July 2023, the Housing Levy still applies to those salaries while the employers who are yet to pay their employees should include the levy in the July 2023 salaries computations and remit it accordingly.
Therefore, for employers who had already paid their employees without deducting the levy should take the following steps in order to make it right with the law:
- Calculate July 2023 PAYE and Housing Levy based on the Finance Act 2023.
- Remit the PAYE and levy before 9th August 2023.
- Inform all employees that their July 2023 salaries contained overpayments due to the failure to deduct the additional taxes and levy.
- Inform employees that the overpayments will be recovered from their August 2023 salaries or in any other suitable instalments.
- Ensure that the total deductions made do not exceed two thirds of the employee’s wages or as specified by the Cabinet Secretary responsible for labour matters.
In summary, the Housing Levy is applicable to the July 2023 salaries, even if they were already paid before the Court of Appeal issued its ruling. For employers who haven’t paid their employees yet, remember to include the levy in the July 2023 salaries and remit it accordingly. For employers who already paid their employees without deducting the levy, follow the above steps to rectify the situation and recover the overpaid amounts.