Kenya’s 2023 Finance Bill has been  signed into law after having been approved by parliament, with the new act  expected to take effect from 1st July 2023. A key component of the bill has been the introduction of a 1.5% housing tax, following an amendment of the previously proposed 3% housing levy as highlighted in our previous article.

Below we highlight some of these key components and their resultant impact on the Real Estate sector:

• Increased Operational Costs, With Fines In Place For Late Remittances

With the bill signed into law, both employees and employers will each contribute a 1.5% tax to the scheme, with a 2% fine applicable on employers who fail to remit the taxes within 9 working days. This means that employed citizens will have to dig deeper into their pockets, in order to fund the initiative. This could in turn lead to job losses as some companies might lay off employees in order to match up the new cost implications. Even without layoffs, this new additional cost could negatively impact living costs of people given that the majority of Kenyans are low to middle income earners, whereas inflation rate has been on the rise, as depicted in our previous article. 

• Affordable Housing Units Delivered Yearly Could Increase, But Not To The 250,000 Target

The introduction of the housing tax as a means to derisking upcoming affordable housing developments is likely to increase the number of affordable housing developments per annum, however this number is likely to still fall short of the target number of 250,000 units p.a. From the previous article, we highlighted that the government requires a bare minimum of Kshs 416.0 bn to fund the target number. With a 1.5% reduction from 3.0 mn formally employed citizens, the government expects to collect over 80 bn per year (approx. Kshs 114bn maximum). Notably, the government has previously been marred with corruption cases and as such this could impede the optimum delivery of the target number of units.

• Property Development Costs To Increase, With Fuel VAT Doubled to 16%

Another key component has been the increase in VAT on fuel by a double margin, from the initial 8% to 16% . This means that development costs for Real Estate projects will increase, given that fuel energy plays a major role in the sector mainly through production and transportation costs. Notably, construction costs in Kenya have been on the rise since 2019 and a double increase in fuel is likely to result in even higher development costs.

 

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