The controversy surrounding the National Housing Development Fund (NHDF) arises from the fact that from all rational socio-economic perspectives, it does not offer to contributors a deal too good to be true but one too fraudulent to be acceptable.
No wonder the Kenya Kwanza Alliance whose marketing prowess enabled it to win the presidency a few months ago, is increasingly finding itself in a position of using parliamentary numbers rather than persuasion to push the case for this fund.
From the onset, it should help to provide the legal backdrop against which the proposed mandatory levy should be viewed. Basically, the Finance Bill, 2023 proposes to amend Section 31A of the Employment Act, 2007 by introducing a new Section 31B to, inter-alia, require an employer to pay to the National Housing Development Fund established under Section 6 of the Housing Act an employer’s and employee’s contribution at three per cent each of the employee’s monthly basic salary.
Notably, the National Housing Development Fund was established in 2018 through an amendment of the Employment Act contained in the Finance Act, 2018 which by implication turned the Housing Fund established under Section 6 of the Housing Act into the National Housing Development Fund.
It bears noting that the Housing Act itself is a colonial legislation enacted in 1953 the, inter-alia, provide for loans and grants of public moneys for construction of dwellings; to establish a housing fund and a housing board for these purposes. Hence the National Housing Corporation.
In all fairness, following the promulgation of the new Constitution in 2010 the Housing Act was effectively repealed and Parliament required to enact a new law that reflects the assignment of housing roles under the Fourth Schedule of the Constitution.
Viewed this way, it should concern the Attorney General that a law that should not exist in the first place is being indirectly amended through the Finance Acts to enable the national government keep and perform a role the Constitution expressly assigns to county governments.
Besides the patronising attitude of the Housing Levy’s proponents, the proposed levy has raised so many unanswered questions that in better days President William Ruto’s chief economic adviser Dr David Ndii would have been inclined to term it a sovereign fraud to establish a slush fund.
There are also too many uncanny coincidences. As Deputy President, Dr Ruto was the chief salesman of the affordable and social housing agenda of the Jubilee government when it was first proposed in 2018 through the Finance Act, 2018.
Housing Principal Secretary Charles Hinga is one of the few senior government officials under President Uhuru Kenyatta who survived the Hustler’s purge. Considering the President’s historical connection to the lucrative business of land and housing, it should be interesting to note that going by the senior appointments in the Ministry of Lands and Housing, Dr Ruto is the effective administrator of this docket.
Beyond all these political and socio-economic concerns, Kenyans should be more worried by the fact that the housing levy is unconstitutional in at least ten respects. Let me start by pointing out that precisely because shelter is one of the basic needs of human beings under Article 43 of the Constitution one of the guaranteed economic and social rights is the right “to accessible and adequate housing, and to reasonable standards of sanitation”.
This provision should be read together with the Fourth Schedule and Article 21(2) which requires the State to take legislative policy and other measures to realise the rights guaranteed under Article 43. Taking all the relevant constitutional provisions into account, my considered view is that whatever the reasons and justification of the government’s housing agenda, the housing levy is hopelessly unconstitutional.
The first ground of unconstitutionality is that under the Fourth Schedule of the Constitution the function of providing housing and sanitation is assigned to county governments; the role of the National Government is restricted to formulation of housing policy.
Viewed in this perspective the national government has no mandate to devise a scheme to mobilise resources and share it out with favoured contractors in the name of providing affordable housing to undetermined class of poor Kenyans. By law each county government is obligated to set up programmes to provide appropriate housing and sanitation to relevant population within their areas.
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Secondly, Article 6(2) provides that governments at the national and county levels are distinct and inter-dependent and requires them to operate and engage each other on the basis of consultation and cooperation. In practical terms, this provision requires the national government to support county governments in performing their functions and simultaneously prohibits it from encroaching or taking over the functions assigned to county governments.
In my view, the proposed fund constitutes a blatant violation of Article 6(2) of the Constitution since the proposed housing scheme amounts to a take-over by the national government of the housing role from county governments.
The third reason relates to the role of the National Government in formulating housing policy. In principle, there is nothing fishy or wrong with an initiative that seeks to formulate a national housing policy. On the contrary the trouble here is that the proposed housing levy presumes that such a policy exists and all that is now required is how to finance and implement it.
By virtue of Article 10 of the Constitution, in formulating a housing policy the national government must ensure that the policy complies with national values and principles of governance set out in Article 10 of the Constitution. These values and principles include sharing and devolution of power, rule of law, public participation, equity, social justice, transparency and accountability and sustainable development. In my view, until such policy has been formulated the government cannot lawfully use the Finance Bill, 2023 to propose amendments to the Employment Act in order to establish the National Housing Development Fund to be implemented by the national government.
The fourth ground of unconstitutionality revolves around the proper use of public land for purposes of providing housing and sanitation. As defined in Article 62 of the Constitution all categories of public land available for housing and sanitation are vested in county governments in trust for people resident in the county, and shall be administered on their behalf by the National Land Commission. In view of this legal fact, various governors have simply been misled or coerced by the national government to unlawfully “donate” land for purposes of President Ruto’s pet project.
The fifth pitfall lies in the fact that the National Housing Development Fund is being established through amendment of the Employment Act, 2007 in contravention of Articles 94, 95(2), 96, 109 and 110 of the Constitution. To be sure, the objective of the Employment Act, 2007 is to “declare and define the fundamental rights of employees, to provide basic conditions of employment of employees, to regulate employment of children, and to provide for matters connected with the foregoing”. Taxation of employees and employers, let alone aiding poor Kenyans to own houses, is not one of the objectives of this Act.
In my view, the National Housing Development Fund and proposed mandatory contributions are a substantive legislative matters similar to NSSF and NHIF that require a stand-alone law enacted in accordance with the procedures set out in Articles 109 – 114 of the Constitution.
Put differently, Parliament unlawfully established the National Housing Development Fund in 2018 and now the government is providing for mandatory contribution through the proposed amendment to the Employment Act in order to evade or circumvent the public accountability and parliamentary scrutiny constitutionally required to enact a stand-alone substantive legislation.
The sixth constitutional objection relates to Chapter Six on leadership and integrity. To be sure Article 73(1)(a) provides that the authority assigned to a state officer is a public trust which must be exercised in a manner that is consistent with the purposes and objects of the Constitution and demonstrates respect for the people.
On the other hand, Article 75(1)(a) implores state officers to avoid any conflict between personal interests and public or official duties. Whichever way we look at it, the housing levy bears all characteristics of a sovereign pyramid scheme and its direct beneficiaries are state officials offering public land to private contractors in a scheme funded through gross abuse of the state power to levy tax albeit disguised as an altruistic contributory scheme. This is why all public objections ranging from that of Anglican Church Archbishop Jackson Ole Sapit to Azimio leader Raila Odinga have all been dismissed with contempt.
The seventh constitutional concern stems from Article 201 that requires public finance to be guided, among other things, by the principles of openness and accountability and the necessity to ensure the burden of taxation is shared fairly. As adverted above, the housing fund is being pushed in a manner deliberately designed to evade public participation and parliamentary scrutiny which are the effective mechanism to ensure openness and accountability. Equally notable, employers and employees have raised legitimate concerns that in the current economic situation it is not feasible to pay the housing levy that does not even benefit the contributors.
The eighth constitutional objection revolves around the growing concern that the Kenya Kwanza government has surrendered Kenya’s sovereignty in financial matters to the International Monetary Fund and the World Bank. In real terms, what this means is that instead of using their imagination to address the country’s budget deficit, President Ruto’s cabinet has chosen the easy option to impose upon Kenyans a greater tax burden as always recommended by the IMF.
Given that the President and his deputy took an oath to defend Kenya’s sovereignty, it is not feasible for them to outsource economic thinking to the IMF and only deploy Dr Ndii’s economic council to perform PR errands.
In his autobiography titled Kenya’s Tax Czar, Michael Gitau Waweru, the KRA Director General during the Mwai Kibaki era profoundly observes that when the NARC government came into power, it “was widely accepted that IMF and the World Bank were dictating government policy because they controlled Kenya’s purse strings. That situation was anathema to President Kibaki, who believed that Kenya had what it took to become self-sufficient at least in terms of financing recurrent expenditure”.
Given President Ruto’s public admiration of President Kibaki’s economic thinking, it might help to remember that central to NARC’s economic philosophy was the ideal of promoting individual prosperity for citizens to pay taxes.
The ninth constitutional objection is fundamental and relates to protection of employers and employees for their money guaranteed by Article 40 of the Constitution. The way I see it is that the Kenya Kwanza government suffers from the delusion that it is a joint owner of all moneys owned by citizens and corporations so that it can always pass a law to claim a portion of it in the form of taxes and levies.
There is no such a thing in a democracy which must always acknowledge and respect the fact citizens can only surrender a small percentage of their income to the government to finance public goods and services. In determining cases on the Finance Bill, 2023 that will certainly be filed, the courts will have to clearly determine the nature and extent of the government powers of taxation vis-à-vis the right of citizens to remain the beneficial owners of their money.
The tenth objection is connected to the previous one and relates to the fact that the Constitution envisages that Kenya is a capitalist democratic state. What this means in real terms is that the means of production and raising resources to cater for societal and individual needs is the responsibility of the citizens themselves whilst the proper role of government is to keep law and order, secure rights and freedoms, protect the community from potential enemies and facilitate production of goods and services by the private sector.
I raise this critical issue because the manifesto of Kenya Kwanza is full of socialist ideas and promises that effectively require the State to get money from one section of the Kenyan people to finance the needs of other groups of Kenyans categorized as hustlers, government shareholders or any other favoured tribal outfits.
Personally, I have no quarrel with socialism because Karl Marx has been one of my favourite philosophers. Yet what is happening in Kenya is inverted Robin Hood socialism in which the political elite – rather than the workers – are the main beneficiaries of socialism.
To paraphrase US Senator Bernie Sanders, the housing fund is a testament of socialism for the rich politicians and contractors in Kenya. As a constitutional lawyer, I am convinced that such brand of socialism must be submitted to a popular referendum before it can be lawfully implemented. Period!
-The writer is a constitutional lawyer ([email protected]).