Kenya’s evolving economy has reached an important milestone with the signing into law of a controversial law by President William Ruto. This new legislation authorizes the collection of a 1.5% housing tax on workers’ monthly salaries.
This tax aims to finance the construction of affordable housing for low-income citizens, but its implementation has attracted strong criticism.
Opposition voices and a significant portion of the public have expressed dismay at the additional tax, seeing it as yet another burden among a series of new taxes.
Although legal obstacles delayed the law’s enactment, a judge had halted the deductions due to a lack of an adequate legal framework. Despite objections from opposition parliamentarians, the law was amended and ratified by MPs last week.
First outlined in President Ruto’s election manifesto for the 2022 elections, the tax is part of a wider finance law passed last June, which also saw the doubling of the fuel tax. Additionally, a higher health insurance tax is expected to be introduced soon.
The government says boosting tax revenues is key to reducing the budget deficit and financing essential public services.
The 1.5% deduction from employees’ salaries began last July. However, in the face of public anger, an activist filed a lawsuit against the government, successfully arguing that it unfairly targeted Kenyans in the formal sector who receive a regular monthly salary.
To address the issues raised by the court, the new law now extends the tax to other workers and requires Kenyans in the informal sector to pay the tax.
The new law also establishes the Affordable Housing Fund, which is intended to manage the money the government will collect from the tax.
Officials say the deduction will not be retroactive to include money that would have been paid if the scheme had not been suspended.
President Ruto aims to build 200,000 affordable homes each year and hopes to create more than 600,000 jobs.