Collecting affordable housing levy is not straightforward

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

19 May 2024

The reality of the Affordable Housing Levy (AHL) has started sinking in. A letter from the Kenya Revenue Authority to taxpayers is doing rounds on Internet social media platforms. It advices taxpayers in to start paying the AHL from May 2024. Of course, employers and employees were expecting this, but, self-employed people were shocked!

The letter instructs the self-employed pay 1.5 percent of their (a) gross rental income, (b) gross sales receipts that is chargeable to turnover tax and (c) any other sales excluding VAT.

I checked what the Affordable Housing Act says about these payments and, on first look, it appears that the KRA is correct. Section 4(2) of the act states: “The Levy shall be at the rate of one point five percent of (a) the gross salary of an employee; or (b) the gross income of a person received or accrued which is not subject to the Levy under paragraph (a).”

The gross salary of an employee is easy to understand: it is the amount before tax and other deductions. The “gross income” of a person who is in business is not a straightforward matter. Is it the sales revenue? Well. yes and no!

If the businesses is in the turnover tax (TOT) regime, there is good argument that the sales can be treated as the “gross income” for the purposes of the AHL. The reason is that this is the value that is taxed (3 per cent of sales). TOT applies to businesses whose annual turnover is between Sh1 million and Sh25 million.

 The same applies to owners of residential rental houses who annual rent is between Sh288,000 and Sh15 million. The rate of tax is 7.5 per cent of the rent. Thus, there is also a good argument that the whole rent is their “gross income”.

For other kinds of businesses that are not covered under these two special tax regimes, it is difficult to make an argument that the total sales are the “gross income”. The reason being that this is not the figure used for calculation of income tax. Consequently, in my view, the “gross income” should be the profit before tax.

However, business people don’t normally do these detailed profit calculations on a monthly basis. The normal practice is to do them after three months. Therefore, it will be impractical and cumbersome to collect the levy from these types of business people.