Why Your Rent Could Be on the Rise Soon

Why Your Rent Could Be on the Rise Soon

Tenants in Kenya may soon be facing higher rents due to the recently implemented Affordable Housing Levy. The levy, which requires landlords to pay 1.5% of the rent they collect, is intended to fund the construction of affordable housing units for low-income residents. However, many landlords are expected to pass on this additional cost to their tenants.

Landlords, who are already facing a saturated property market with potentially dropping prices, may see the affordable housing levy as a significant financial strain. This levy adds to the existing tax burden on landlords, including the monthly rental income tax, further straining their finances.

Notably, property owners earning rental income ranging from Sh280, 000 to Sh15 million will be subject to a monthly rental income tax of 7.5 percent on their gross rental income, calculated without subtracting expenses or losses.

To offset this cost, they will raise rents, impacting tenants who are already struggling with the rising cost of living. This could disproportionately affect low and middle-income renters, potentially negating the intended benefits of the levy itself. Analysts have described the property market as subdued due to oversupply.

The impact of the affordable housing levy goes beyond the rental market. Affordable Housing Levy will be imposed at a rate of 1.5 percent on gross income received or accrued. This encompasses gross rental income, gross receipts (amount subject to turnover), and other sales before applying VAT (value added tax).

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Presently, the KRA anticipates small businesses with sales ranging from Sh1 million to Sh25 million to pay a turnover tax of three percent on gross turnover. These businesses, responsible for employing over 85 percent of Kenyans, have also expressed concern about inflationary pressures stemming from elevated taxes and the rising prices of inputs like fuel.

The implementation of the affordable housing levy has not been smooth. Initially, the levy only applied to salaried employees. However, a court ruling in December 2023 dealt a blow to President William Ruto’s plan, declaring the levy unconstitutional for excluding the informal sector.

President Ruto was infuriated by the Court’s ruling. He expressed that he perceived the judgment as an attempt to hinder his campaign pledge of generating employment opportunities for the millions of unemployed youths and offering decent housing for Kenyans residing in slums.

This forced the government to come up with the Affordable Housing Act 2024 which extends the 1.5 percent housing levy to any person receiving an income. All employees, whether on permanent and pensionable terms or contract-based engagements, started contributing to the Affordable Housing Fund in July.

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The KRA has set the due date for remittance of the affordable housing levy as the 9th working day after the end of the month in which the gross salary was due or gross income was received or accrued.

It has stated that if the levy remains unpaid, a penalty of three percent will be applied for each month of non-compliance. According to the authority, this arrangement ensures that taxpayers make their contributions in a timely manner.

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