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The government says its new plan will help home buyers but it risks hurting low and middle-income workers
Pressure is piling on President William Ruto's government over planned tax rises in the Finance Bill due next week that has prompted the country's public service trade unions to petition Parliament to reject the proposals. They are threatening to mobilise a national strike should it be passed.
Their main targets are a house levy, value added tax (VAT) on fuel and the introduction of a turnover tax on small businesses.
The new taxes follow recent increases to the statutory contribution to the National Social Security Fund (NSSF) and National Health Insurance Fund (NHIF). Public sympathy for the cash government's cash flow crisis and need for increased tax revenues is ebbing fast. The increased cost of living fuelled by food inflation, a weak shilling that has lost over 15% of its value against the US dollar this year, and drought, are hitting living standards across the country.
The housing levy is being sold as a means to fund Ruto's Affordable Housing Programme (AHP) that promises to construct 200,000 affordable houses a year through public-private partnerships.
It is estimated that the proposed 3% compulsory deduction from people's pay packets will raise Ksh9 billion every month. The levy would be capped at Sh2500 ($20) per month, with employers obliged to top up a similar amount with an opt-out option after seven years.
The levy is compulsory and its flat rate hurts middle and low-income Kenyans far more than their wealthy counterparts but the government insists that the housing fund is a not a tax.
Trying to explain the levy's provisions, Charles Hinga, Principal Secretary at the Department for Housing and Urban Development, described it as a 'sweetheart deal' in a rambling exposition. He argued that anchoring the fund in law, as with the fuel levy, is vital to attract potential investors. Comparing the plan to a pension scheme, Hinga said it would enable the government to offer 20-30 year mortgages at lower interest rates than the high street lenders.
President Uhuru Kenyatta's government proposed a similar scheme but it was challenged in the courts and then quietly abandoned.
The high profile given to the housing levy under Ruto could distract attention from other equally questionable proposals in the Finance Bill. It is due to be read in parliament on 8 June.
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