Kenya’s Affordable Housing Levy (AHL) continues to stir debate nationwide. The Levy mandates that both employers and employees contribute 1.5% of the employee’s gross monthly salary. This means that for every Ksh100,000 earned, each party will contribute:

1. Employee: Ksh1,500
2. Employer: Ksh1,500
3. Total Levy remitted: Ksh3,000

The aim is to address Kenya’s urban housing shortage by building 250,000 new homes annually. The Levy is deducted from various income components, such as:

1. Basic salary
2. Overtime pay
3. Bonuses and commissions
4. Housing and transport allowances
5. Certain non-cash benefits, like the use of a company car

However, some benefits, including medical coverage, life insurance premiums, and pension contributions, are exempt from the Levy.

The Central Organisation of Trade Unions (COTU) has come out in support of the Affordable Housing Levy. COTU Secretary-General Francis Atwoli emphasised that the workers’ umbrella body would be part of the National Housing and Development Fund (NHDF) board, ensuring the proper use of the collected funds.

On the government’s part, the Levy is seen as a measure to promote equitable access to decent and affordable housing for all Kenyans, in line with Article 43 of the Constitution. Lands and Housing Cabinet Secretary Alice Muthoni stated that the Levy’s revenue base extends beyond salaried employees to anyone with other income sources, regardless of employment status.

Court ruling on the Housing Levy

The legality of the AHL was recently challenged in court. A three-judge bench, consisting of Justices Olga Sewe, John Chigiti, and Josephine Mong’are, ruled that the Levy was properly enacted in line with the Constitution. They affirmed that public participation before the enactment was adequate.

“Taking into account the principles set out and the burden of proof, we are satisfied that there was adequate public participation before the enactment of the Act,” stated the judges. They also ruled that the petitioners had failed to prove the Levy was discriminatory or that it placed an unjust burden on taxpayers.

Dr. Magare Gikenyi, one of the petitioners, argued that the Levy unfairly targeted formal employees while excluding those in informal sectors. Despite his respect for the court’s decision, he disagreed with the ruling and announced his intention to appeal, requesting certified copies of the judgement.

Payroll deductions comparison: 2022 vs. 2024

The implementation of the AHL, along with adjustments in other deductions, has had a substantial impact on what employees take home at the end of the month. Below is a detailed comparison of payroll deductions for different salary levels in October 2022 and October 2024.

Comparing the deductions in October 2022 to October 2024, the introduction of the Affordable Housing Levy and other changes have resulted in reduced net pay for employees. For instance:

• For a gross salary of Ksh50,000, the payslip deduction has increased by Ksh2,364. 
• For a gross salary of Ksh200,000, the payslip deduction has increased by Ksh7,977.
• For a gross salary of Ksh600,000, the payslip deduction has increased by Ksh26,522.

Mitigation measures

To mitigate the impact, the Treasury has proposed tax reliefs. These allow the Housing Levy and the Social Health Insurance Fund (SHIF) contributions to be deducted from gross pay before income tax calculation, providing some financial relief. Monthly reliefs include:

• Ksh318 for those earning Ksh50,000
• Ksh637 for those earning Ksh100,000
• Ksh3,187 for those earning Ksh500,000