Teachers and business lobby reject 3pc cheap housing tax

south b affordble houses

Affordable houses under construction in South B, Nairobi, in October 2022.

Photo credit: File | Nation Media Group

President William Ruto's push to deduct three per cent from workers’ salaries to fund the development of affordable housing continues to draw criticism from various stakeholder, who want the proposal contained in the government’s Sh3.6 trillion budget for the 2023/2024 financial year shelved.

The latest to add his voice to the chorus of opposition is Kenya Union of Post Primary Education Teachers (Kuppet) National Vice-President Julius Korir and its secretary for secondary education, Mr Henry Obwocha, who said yesterday Parliament should reject the proposed levy, terming it punitive.

And speaking at a separate event, Kenya National Chamber of Commerce and Industry (KNCCI) Chairman Leonard Langat said the government should be careful in the way it seeks to raise money through taxes and levies to fund the proposed national budget.

Mr Korir and Mr Obwocha said that, before implementing the levy, the government should increase teachers’ salaries by at least 30 percent.

"It would make a lot of economic sense if the proposed levies were set against the backdrop of a salary increase. Whose houses are we funding and how will we as individual contributors benefit from the levies in the long run?" Mr Korir wondered. The unionists said the government should instead look for external partners to fund the 250,000 low-cost housing units to be built across the country annually.

"The superannuation scheme currently stands at 7.5 per cent of teachers' salaries, yet there has been no [salary] increase by the Teachers Service Commission since 2016," Obwocha said.

"In fact, most teachers and civil servants are currently servicing mortgages on the houses they occupy, among other loans they have secured from financial institutions. The imposition of a three per cent housing levy will greatly affect their budgets," Mr Obwocha said. He added that some of the teachers and civil servants who will suffer as a result of the proposed levy are nearing retirement.

"The government should work towards increasing the volume of exports of agricultural produce, goods and services to create jobs, encourage the growth of cottage industries and increase foreign exchange earnings," said Mr Langat.

Kuppet national gender secretary Catherine Wambilianga, who is also the Bungoma Woman Representative, said the deduction could affect teachers' performance due to low morale. She said teachers are already struggling to make ends meet and the proposed deduction would make it worse.

Speaking during the Webuye East Constituency Education Day at St Cecilia Girls Misikhu, Ms Wambilianga said the proposal was not in the best interest of teachers, who were already suffering from inadequate salaries and harsh working conditions. President Ruto has said the government will not relent in its push to get Parliament to pass the Housing Levy under the Finance Bill 2023.

“We want to put our money together so that we can create an opportunity for ordinary citizens to also have access to mortgages,” Dr Ruto said of his pet project, the Hustler Mortgage.

Dr Ruto was speaking on Thursday last week during the ground-breaking ceremony for the construction of the Lapfund Bellevue Park Residence Project in Nairobi, which will see the a total of 2,350 housing units build under the affordable housing programme.

National Treasury Cabinet Secretary Njuguna Ndung'u defended the proposals contained in the 2023/2024 Finance Bill, which proposes amendments to various tax laws, including the Income Tax Act, the Tax Procedures Act, the Value Added Tax Act and the Miscellaneous Fees and Levies Act.

"The tax proposals are the way to go but they are not set in stone ... We are moving to the public participation stage where the proposals, if passed, will become law," said Professor Ndung'u.

The 2023 Finance Bill also proposes the reintroduction of a 16 per cent VAT on petroleum products, which is expected to increase the cost of the precious commodity.

It also wants to increase the tax burden on those earning Sh500,000 a month or more to 35 per cent from the current 30 per cent. Mr Ndiritu Muriithi, a former Laikipia governor and an economics and financial markets expert, said "...the increase in VAT on fuel from eight per cent to 16 per cent will increase pump prices by Sh9 per litre for diesel and Sh10 per litre for petrol".

Mr Muriithi added that the 15 per cent withholding tax on digital content creators is discriminatory compared to five per cent for other professional services, while other digital services such as crypto will attract a three per cent tax.

Former Prime Minister Raila Odinga has criticised the tax proposals, urging the National Assembly to reject it as it would increase the cost of living.

The proposed 15 per cent tax on digital content creators, taxation of daily allowances at a rate of 30 per cent, tax on beauty products and the three per cent housing levy on workers and employers are some of the proposals that Mr Odinga, the leader of Azimio La Umoja One Kenya Coalition Party, wants MPs to reject.

"The biggest casualties will be small and medium-sized businesses. These businesses are the heart of the hustler nation. They are struggling," Mr Odinga said last week. Central Organisation of Trade Unions secretary-general Francis Atwoli has broken ranks with some unions opposed to the proposed housing levy.

"It must be noted that the housing levy is NOT A TAX and that this is a great initiative to build low-cost houses for Kenyan workers," Mr Atwoli said.

The National Treasury, in its 2023 Budget Policy Statement, notes that the informal and agricultural sectors have the potential to generate Sh2.8 trillion in revenue, especially from micro, small and medium enterprises, which it says should be included in the tax base.

Additional reporting by Mercy Simiyu