PUBLIC NOTICES 04/08/2023 Collection of Affordable Housing Levy by Kenya Revenue Authority

The Kenya Revenue Authority's (KRA) public notice on August 4, 2023, initiated the collection of the Affordable Housing Levy (AHL) under the Finance Act, 2023. This initial framework, mandating a 1.5% contribution from both employees and employers, faced significant legal challenges, culminating in the High Court declaring it unconstitutional in November 2023. Following a temporary halt in collections, the government enacted the Affordable Housing Act, 2024, in March 2024, which re-established and broadened the levy to include self-employed individuals. While a subsequent High Court ruling in October 2024 upheld the constitutionality of the new Act, the AHL remains subject to ongoing appeals before the Court of Appeal, necessitating continued compliance by practitioners amidst judicial scrutiny.

On August 4, 2023, the Kenya Revenue Authority (KRA) issued a public notice signaling the commencement of the collection of the Affordable Housing Levy (AHL). This directive, following the enactment of the Finance Act, 2023, aimed to operationalize a key government initiative to address Kenya's significant housing deficit by funding the construction of affordable housing units. The levy, initially set as a mandatory contribution from both employed individuals and their employers, quickly became a focal point of public debate and legal contention.

The KRA's notice served as a critical communication to employers and taxpayers, outlining the mechanics of deduction and remittance. However, the legal foundation of the AHL proved to be precarious, leading to a series of judicial interventions that challenged its constitutionality and implementation. This article delves into the complex legal journey of the Affordable Housing Levy, from its initial introduction and subsequent judicial invalidation to its legislative re-enactment and the ongoing appellate scrutiny that continues to shape its application.

The evolution of the AHL underscores the dynamic interplay between legislative intent, public participation, and judicial oversight in Kenya's legal landscape. For practising attorneys and legal professionals, understanding this trajectory is crucial for advising clients on compliance, assessing potential liabilities, and anticipating future developments in this significant area of public finance and social policy.

The Affordable Housing Levy was initially introduced through the Finance Act, 2023, with an effective date of July 1, 2023. Under this initial framework, both an employee and their employer were required to contribute 1.5% of the employee's gross monthly salary towards the levy. The Ministry of Lands, Public Works, Housing and Urban Development, through a public notice dated August 3, 2023, appointed the Kenya Revenue Authority (KRA) as the official collection agent for the AHL. KRA subsequently issued its own public notice on August 4, 2023, reiterating the effective date and providing guidance on the declaration and remittance process, including specifying that the levy should be declared under sheet 'M' of the PAYE return on iTax and a separate payment slip generated.

However, the implementation of the AHL under the Finance Act, 2023, was swiftly met with legal challenges. Petitions were filed in the High Court, arguing that the levy lacked a proper legal framework for its administration and was discriminatory as it primarily targeted formal sector employees. On November 28, 2023, a three-judge bench of the High Court delivered a landmark ruling, declaring sections 76, 77, 78, 84, 87, 88, and 89 of the Finance Act, 2023, which provided for the AHL, unconstitutional. The court found that the levy was discriminatory, irrational, and arbitrary, and that there was no legal framework to govern its imposition and administration.

Despite declaring the levy unconstitutional, the High Court initially granted a temporary stay of its judgment until January 10, 2024, to allow the government to appeal. However, on January 26, 2024, the Court of Appeal declined to issue further stay orders, effectively halting the collection of the levy from that date. This decision meant that employers had no legal basis to deduct the housing levy from employees' salaries for January 2024 and beyond, until a new legal framework was established.

The High Court's decision on November 28, 2023, in consolidated petitions including *Okiya Omtatah Okoiti & others vs Cabinet Secretary for National Treasury Planning and 6 others, Constitutional Petition No. E181 of 2023*, was a significant blow to the government's affordable housing agenda. The court's reasoning hinged on the levy's discriminatory nature, burdening only formal sector employees, and the absence of a comprehensive legal framework to govern the collection and utilization of the funds. This ruling underscored the constitutional imperative for equitable taxation and proper legislative backing for public levies.

The subsequent refusal by the Court of Appeal on January 26, 2024, in *The National Assembly & Another (Applicants) vs Okiya Omtatah Okoiti & others (Respondents) Consolidated Civil Application No. E577 of 2023*, to grant further conservatory orders meant that the collection of the AHL was effectively suspended. This created a period of uncertainty for employers and employees, with advice from legal experts suggesting that employers should cease deductions and even consider refunding amounts collected for January 2024.

In response to these judicial pronouncements, the government moved swiftly to rectify the legal deficiencies. On March 19, 2024, the President assented to the Affordable Housing Bill, 2023, transforming it into the Affordable Housing Act, 2024 (Act No. 2 of 2024). This new Act provided a dedicated legal framework for the AHL, addressing the constitutional concerns raised by the High Court. The Act expanded the scope of the levy, making it applicable to all individuals earning income, whether employed or self-employed, at a rate of 1.5% of their gross income. Employers are required to match the employee's contribution of 1.5% of the employee's gross monthly salary.

Following the enactment of the Affordable Housing Act, 2024, KRA resumed collection of the levy, with the new provisions taking effect from March 19, 2024. The Act also introduced provisions for affordable housing relief for resident individuals who pay the levy, capped at KES 108,000 per annum, and stipulated a penalty of 3% per month for unpaid amounts. Despite the legislative overhaul, the Affordable Housing Act, 2024, itself faced new constitutional challenges. However, a three-judge bench of the High Court, comprising Justices Olga Sewe, John Chigiti, and Josephine Mong'are, ruled on October 22, 2024, that the new Act and the levy were properly enacted and constitutional, dismissing arguments of double taxation and discrimination.

The legal saga is not yet concluded. Appeals against the High Court's October 2024 ruling were consolidated and heard by a five-judge bench of the Court of Appeal on January 19, 2026. As of the current date, the judgment from the Court of Appeal is still pending. Until the Court of Appeal publishes its definitive judgment, the deduction and remittance obligations under the Affordable Housing Act, 2024, remain in force. This ongoing judicial process highlights the persistent legal complexities surrounding the AHL, even after legislative amendments aimed at addressing initial constitutional infirmities.

The journey of Kenya's Affordable Housing Levy has been marked by significant legislative and judicial milestones, evolving from an initial KRA public notice in August 2023 to a fully re-enacted statute in March 2024, now under appellate review. While the initial levy under the Finance Act, 2023, was declared unconstitutional, the subsequent Affordable Housing Act, 2024, has provided a new legal foundation, broadening the levy's application and clarifying its administrative framework. The High Court has since upheld the constitutionality of the 2024 Act, but its ultimate fate rests with the pending judgment from the Court of Appeal.

For legal practitioners, the current imperative is clear: employers and individuals earning income must continue to comply with the provisions of the Affordable Housing Act, 2024, by deducting and remitting the 1.5% levy on gross income, with employers matching employee contributions. The Kenya Revenue Authority remains the designated collector, and non-compliance carries a penalty of 3% per month on unpaid amounts. Practitioners should closely monitor the forthcoming judgment from the Court of Appeal, as it will provide the final judicial pronouncement on the constitutionality and future of this critical national levy. Advising clients to maintain strict compliance while staying abreast of legal developments is paramount to navigating this evolving regulatory landscape.