Ruto's 'no-tax Finance Bill' to raise cost of affordable housing project

President William Ruto interacts with construction workers during the inspection of the ongoing construction of the 4,566-unit Shauri Moyo B Affordable Housing Project in Kamukunji Constituency, Nairobi, in March this year. [PCS] President William Ruto's "no-taxes Finance Bill" has hit one of his pet projects after it proposed to remove tax exemptions on materials used for the construction of affordable houses. On the flipside, the Bill has proposed lowering the Export and Investment Levy on certain construction products to five per cent from 17.5 per cent, seen as a move to lift the construction industry that was on consistent decline last year, contracting for two consecutive quarters. The Finance Bill 2025 contains no new tax measures in an attempt by the government to calm Kenyans following last year's anti-government demos. Analysts, however, say that some of the proposals, including taking away tax exemptions on some products, will result in a higher cost of some goods. The Bill, tabled in Parliament last Wednesday, has proposed the deletion of paragraph 109 of the First Schedule of the Value-Added Tax (VAT), which lists supplies to affordable housing as VAT-exempt. This means materials such as cement, steel and roofing products will not attract VAT. If the proposal sails through Parliament, it will introduce VAT at the standard rate of 16 per cent on construction materials supplied to affordable housing projects. The Finance Bill further proposes to amend the Miscellaneous Fees and Levies Act, reducing the Export and Investment Promotion Levy for select products to five per cent from 17.5 per cent. These include semi-finished products of iron and non-alloy steel and bars and rods of iron or non-alloy steel, hot rolled, in irregularly wound coils of circular cross-section. The lower cost of steel rods and bars is expected to give some relief to the construction industry, including the government's affordable housing projects, although this relief will be offset by imposing 16 per cent VAT on goods supplied to the affordable housing project. The give-and-take projects a shaky policy approach to the project and generally to the construction industry by the government. The government has been criticised for its approach to the affordable housing programme, which the Vietnamese industrialist Doanh Chau noted, despite the potential to improve the housing for Kenyans as well as to attract investors, is still underperforming. "President Ruto wants to build public housing, but investors are scared off by petty corruption and legal instability. There are no credible incentives, no serious risk guarantees. In short, no real initiative to make it happen," he said in a post on his social media handles two weeks ago. The construction sector is also likely to suffer following the withdrawal of tax exemptions that had been offered to the tourism industry. The Bill, which will be subjected to public participation over the coming weeks, has also proposed the removal from the list of VAT-exempt supplies of "taxable goods for direct and exclusive use for the construction of tourism facilities, recreational parks of fifty acres or more, and convention and conference facilities." The government had in 2020 exempted goods used in the construction of tourism facilities, including hotels, conference facilities and recreational parks, as it sought to resuscitate the industry that was at the time suffering from the effects of Covid-19. The different proposals in the Finance Bill will hit the construction sector, which has in the past been among the sectors that supported the economy in difficult times, including during the drought that the country experienced two years ago. The sector has, however, suffered a decline last year, contracting by 2.9 and two per cent over the second and third quarters, respectively, while growing by just one per cent over the first quarter, according to data from the Kenya National Bureau of Statistics (KNBS). The decline has been attributed to difficulties for the private sector to access credit following high interest rates, which also affected the rate at which other sectors were spending on construction projects. The proposals in the Finance Bill are likely to hit the government's affordable housing plan, which President Ruto has championed with vigour as a core pillar of his administration's Bottom-Up Economic Transformation Agenda (Beta). In March, the President noted that through the housing projects that are taking place across the country, the government would do away with the indignity and squalor in slums in different towns and cities. Addressing residents of Nairobi during what was termed a working tour of the city, Ruto said, despite opposition from some politicians, the Affordable Housing Programme would go on uninterrupted. He said the programme is creating employment opportunities and will provide decent housing to Kenyans living in informal settlements. "Sometimes you fail to understand why some leaders are opposed to a project that has employed many young people and also enables them to own decent homes," he pointed out. The funding of the programme has itself been a subject of great controversy. The Affordable Housing Levy, which was introduced through the Finance Act 2023 imposing a 1.5 per cent deduction on the pay of formally employed Kenyans, was subject to numerous court cases over its constitutionality before the government parliament passed putting in place structures, including the passage of the Affordable Housing Act last year, for the administration of the levy. The levy is expected to enable the government to collect as much as Sh90 billion annually by its fourth year of implementation. According to National Treasury documents, collections through the Affordable Housing Levy are expected to reach Sh89 billion in the 2026-27 financial year, up from the estimated Sh63.2 billion over the first financial year. Revenues through the levy are expected to grow gradually to Sh70 billion in the 2024-25 financial year and Sh78 billion in the 2025-26 financial year. According to this year's Budget Policy Statement (BPS), the National Treasury said the programme to increase the supply of affordable houses from the current two per cent to 50 per cent by facilitating the delivery of 200,000 housing units annually. Additionally, after two years of implementing the Affordable Housing Programme, 124,000 housing units are at different stages of completion across 75 sites in 37 counties," said Treasury, adding that these include houses for the military, police, and correctional services personnel; student accommodation; and private-sector developments. "The Affordable Housing Programme has created over 164,000 jobs through the housing value chain."

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