State offers to make refunds on housing tax

The Government has sought to assure workers of the safety of their contributions should the proposed housing levy become law.

The proposal, contained in the controversial Finance Bill, wants workers to contribute 0.5 per cent of their gross salaries to a new low-cost housing development fund, as long as the amount does not exceed Sh5,000. Their employers are expected to match the contribution.

But the proposal has elicited opposition from various quarters, including MPs, who have said it would over-burden taxpayers.

Questions have also been raised about how the fund would be administered in terms of ensuring equity in how contributors benefit from the proposed low-cost houses.

Found ineligible

Transport and Housing Cabinet Secretary James Macharia yesterday sought to allay such fears, saying structures had been put in place to ensure that no one loses their deductions even if they do not qualify to get a house.

Mr Macharia, who was speaking during an investment forum hosted by the Capital Markets Authority (CMA) in Nairobi, said contributors who were found to be ineligible after between five and 10 years would be refunded their contributions in full plus interest accrued during that period.

“The main complaint that reached Parliament and the reason they picked up the levy as one of the reasons they rejected the Finance Bill was that workers did not really see the value of the fund, especially if they were not assured of getting houses,” said the CS.

“But now, we have approached Parliament and guaranteed that when a worker makes a contribution and the employer matches it for a period of five to 10 years without getting a house, that individual will be liable for a refund of the money in the same way a pension fund works. The refund would be made plus interest acquired during that time.”

Bought into idea

Mr Macharia said Parliament had bought into the idea and would now support the levy.

The housing development fund, which would be funded through the levy, was meant to help the Government realise its goal of delivering half-a-million housing units in five years.

Parliament shot down the proposal after workers’ and employers’ unions objected, claiming the levy would squeeze their pockets without offering any assurances on the benefits to be derived from the pool of money collected.

Faced with difficult questions on poor governance issues among State-sponsored funds such as the National Social Security Fund and the National Hospital Insurance Fund and whether the proposed fund would not suffer the same fate, CS Macharia said this would not be the case. “We have a new beginning now. The fund will have new board members and governance structures that will see the impunity of yesterday gone.”

Participants at the CMA forum lamented that Kenyan investors - from pension funds to private equity players - had shunned Real Estate Investment Trusts (REITs).

Wycliffe Shamia, a director for market operations at CMA, explained that despite the Government’s legislative interventions meant to make REITs attractive to investors, the option was still performing poorly as an investment vehicle at the Nairobi Securities Exchange (NSE).

The Government has exempted REITs from stamp duty, only taxing emoluments accrued as interest income and dividend.

“REITs make investments in real estate easy because an investor can simply make his investment liquid by trading it,” said Mr Shamia.

Only one firm trades under the REITs class at the NSE – Stanlib Fahari I-REIT.