The Treasury is seeking to scrap a guideline that handed immunity to high income earners in the housing levy, limiting the monthly relief to 15 percent of the actual contribution.
Through the Finance Bill 2019, Treasury CS Henry Rotich has sought to peg the 15 percent monthly relief on the contribution as opposed to gross earnings as previously announced.
Under the law which has since been challenged in court, workers are supposed to contribute 1.5 percent of their basic salary — up to a monthly limit of Sh2,500 — to the National Housing Development Fund. Employers will match each worker’s contribution.
In the previously published guidelines that had pegged the monthly relief on gross pay, contributors would have enjoyed up to Sh9,000 in monthly tax relief which is nearly four times the statutory maximum of Sh2,500.
The changes sought through the Finance Bill 2019 imply top contributors will enjoy tax relief of Sh750.
“The Bill seeks to introduce the definition of “basic salary” to guide on the base amount for computing the levy payable to the National Housing Development Fund,” reads the bill.
Audit and advisory firm KPMG says this change has been proposed to avoid a situation where emoluments will result in a person getting relief that is in excess of their contributions.
“This will increase the burden on the contributors as it significantly restricts the relief, potentially making affordable housing contributions unaffordable to a majority of the target population,” says KPMG in post-budget brief.
EY tax partner Christopher Kirathe says there was no clarity on the earnings to be used in computation.
“The Treasury needed to define ‘basic salary’ because the term is not in the Employment Act, 2007 leading to confusion. It would have had challenges to implement without this definition,” said Mr Kiraithe.
While the Central Organisation of Trade Unions says rollout should only come after at least 15 percent wage rise, Federation of Kenya Employers says the levy is unsustainable.