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Why 1.5% housing levy will cost you more than the original 3%

The 1.5 per cent housing levy that Kenyans will be subjected to if the Finance Bill 2023 is passed will cost employees more as opposed to the 3 per cent that had been initially proposed by the National Treasury.

At first, President William Ruto’s government was pushing for a 3 per cent housing levy contribution that would be matched by employers at the same rate of 3 per cent.

Although the government termed the contribution as a saving and a win for employees, it has now been amended to a tax.

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Initially, the contributions were capped at a total of Sh5,000 for both employee and employer. However, with the new house levy (1.5%), employees will contribute as per their earnings.

This means that if your salary is Sh500,000, you will be taxed Sh7,500, an amount that will be matched by employer, for a total contribution of Sh15,000.

On the other hand, if you earn Sh50,000, you will be required to pay Sh750, which will be matched by your employer for a total contribution of Sh1,500.

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The proposed housing levy was lowered on Monday June 12, 2023 following a parliamentary group meeting of the UDA, the largest party in the ruling Kenya Kwanza coalition.

President Ruto’s administration wants to build affordable houses as part of his bottom-up economic model, arguing that it will give an opportunity for people living in informal settlements to own homes and create employment opportunities through the construction of 250,000 houses annually.

Critics, however, say that the contribution will reduce the take-home salary for employees who are already grappling with the rising cost of living in the country.

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