Lack of a comprehensive legal framework

The High Court held that the introduction of the housing levy through the amendment of the Employment Act, 2007 (Employment Act) lacked a comprehensive legal framework in violation of Articles 10, 201, 206 and 210 of the Constitution of Kenya, 2010 (Constitution). The introduction of the Bill therefore serves to provide the legal framework for the housing levy. Clause 3 (2) of the Bill expressly provides that the implementation of the Affordable Housing Act shall be guided by the national values and principles of governance under Article 10 (2)(b) of the Constitution, the principles of public finance under Article 201 of the Constitution, and the values and principles of public service under Article 232 of the Constitution.

The discriminatory nature of the housing levy

The High Court further determined that the imposition of the housing levy against persons in formal employment to the exclusion of other non-formal income earners to support the national housing policy was without justification, was unfair, discriminatory, irrational and arbitrary, and was in violation of Articles 27 and 201 (b)(i) of the Constitution.

In an attempt to remedy this, the Bill, in clause 4, imposes the affordable housing levy at the rate of 1,5% of the gross salary of an employee; or in the alternative, the gross income of a person received or accrued which is not subject to the levy in the first instance. This provision therefore seeks to rope in other non-formal income earners to support national housing, as an attempt at sealing the discrimination loophole. However, it does not stipulate how this will be effected.

Clause 6 of the Bill empowers the Cabinet Secretary with the discretional right to exempt any income or class of income, or any person or category of persons from the payment of the affordable housing levy. This could be an avenue for the Cabinet Secretary to later exempt non-formal income earners due to the imminent difficulty in effecting the collection of the housing levy.

Defining the housing levy

It was the High Court’s finding that the amendment of the Employment Act to introduce the affordable housing levy did not contain a legal definition of the housing levy, nor did it even define the term “levy” as used in the amendment. The court therefore held that the lack of certainty in a matter as important as the definition of the housing levy was a major defect in the impugned amendment. To cure this, clause 2 of the Bill defines “affordable housing” as housing that is adequate and costs not more than 30% of a person’s income per month to rent or acquire, and “levy” as the affordable housing levy imposed under section 4 of the Affordable Housing Bill, 2023 (the Bill).

Administration of the housing levy

The other major issue that was pointed out was that section 84 of the Finance Act does not set out how the levy will be administered once it is collected, and more importantly, the legislation does not state how it supports the housing policy function of the national Government.

Consequently, Part III of the Bill has established the Affordable Housing Fund, which is vested in and managed by a board. The provision comprehensively outlines the collection, purpose and allocation of the fund. It further stipulates the role of the board in overseeing the development of affordable housing and associated social and physical infrastructure.

Conclusion

The High Court temporarily stayed the implementation of its decision revoking the implementation of the affordable housing levy to enable the Government to appeal, and the Court of Appeal has further ordered the maintenance of the status quo until 26 January 2023, when it will issue a substantive ruling on five appeals regarding whether it should lift the High Court’s stay order or grant a further extension on the collection of the levy pending the hearing and determination of the appeals.

The introduction of the Bill seems to be a bid to avert the possible revocation of the levy by the superior courts. The Bill emerges as a response to the constitutional concerns that were raised by the High Court, striving to rectify the deficiencies identified. By introducing a comprehensive legal framework, attempting to address the discriminatory nature of the levy, providing a definition for “affordable housing” and “levy”, and establishing the Affordable Housing Fund with clear guidelines for administration, the Government is seeking to ensure adherence to constitutional principles.

However, as this alert has analysed, certain aspects of the Bill, such as the applicability of the levy to non-formal income earners and the discretionary power granted to the Cabinet Secretary in clause 6, warrant careful scrutiny. While clause 4 attempts to bridge gaps in discrimination, the effectiveness of its application remains unclear. Similarly, the discretion vested in the Cabinet Secretary raises questions about the potential for future exemptions and the impact on the levy’s overall objectives.

Next, the Bill will undergo its second reading and be sent to the designated committee, and it will then be subjected to public participation before it is presented for a third reading with amendments and, the subsequent presidential assent.

The National Assembly was expected to start on the public hearing on the Bill from 17 January 2024. The High Court in Kisumu has however issued temporary orders to stop the hearings until a case challenging the notice for public hearings is heard and determined.

While the Bill progresses through the legislative channels, it is essential for stakeholders, policymakers, and the public to engage in thoughtful deliberation to ensure that the final legislation not only addresses the constitutional concerns raised by the High Court but also aligns with the broader goals of national housing policy.