Tax reforms proposed in the bill have aroused concerns due to their potential to increase costs and financial burdens across the board.
A positive proposal in the Bill for the housing sector is the removal of the excise duty rate on cement clinkers.
Some of the Finance Bill proposals highlighted reflect the government’s attempts to promote affordability, stimulate construction, and streamline property transactions in the housing sector.
The Finance Bill 2024 has become the focal point of discussions across Kenya, capturing the attention of individuals and businesses alike. This widespread interest stems from the significant and far-reaching impact the proposed bill could have on various sectors and the daily lives of Kenyans.
The comprehensive tax reforms proposed in the bill have aroused concerns due to their potential to increase costs and financial burdens across the board. With the prospect of higher taxes on fuel, motor vehicles, and digital services, many fear that the economic repercussions will be predominantly negative, affecting everything from household expenses to business operations.
The bill’s introduction has sparked a vigorous national debate, with many stakeholders expressing apprehension about its timing and potential consequences. As industries brace for increased operational costs and individuals worry about rising living expenses, the conversation around the Finance Bill 2024 highlights the delicate balance the government must strike between generating revenue and fostering economic stability. The outcome of this legislative proposal will not only shape Kenya’s fiscal policy but also its economic trajectory in the coming years.
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Implications of the finance bill 2024 to the housing sector
The Finance Bill 2024 can significantly affect the housing and settlement sector, which aligns with the government’s commitment to address the country’s housing challenges and urbanisation.
Article 43 of the Kenyan Constitution indicates the right to better and adequate housing and sanitation, recognising this as a bedrock of economic and social rights. However, Kenya needs help with significant housing shortages, especially in urban areas where rapid population growth and rural-urban migration strain existing infrastructure. Informal settlements, with inadequate housing and basic social amenities, are prevalent.
The Government is implementing policies and reforms to lower construction costs and improve access to affordable housing finance while creating jobs and entrepreneurial opportunities for all Kenyans. These include structuring affordable long-term housing finance schemes, such as the National Housing Fund and Cooperative Social Housing Schemes, which will guarantee the offtake of houses from developers, as well as the enactment of the Affordable Housing Levy and the Affordable Housing Act 2024.
The Affordable Housing Act introduced a levy at the rate of 1.5 per cent on the gross income for persons not in employment or the gross salary of an employee, with a matching contribution from the employer. It establishes the Affordable Housing Fund to de-risk investments and offer affordable finance, enhancing homeownership accessibility.
Several amendments in the Finance Bill 2024 are affecting housing. It removes affordable housing contribution relief but introduces tax deductions for payments under the Affordable Housing Act, resulting in a reduction in the taxpayer’s tax burden. Deductible interest payments on loans for residential premises’ construction or improvement are proposed to increase from KES 300,000 to KES 360,000 per annum, incentivising homeownership and stimulating economic growth through increased construction activity.
Another proposal is the deletion of Section 54 of the Affordable Housing Act, which prevented owners of affordable housing units from selling their units without the prior written consent of the Affordable Housing Board. If enacted, this will streamline property transactions, fostering a more fluid housing market. However, it may result in the abuse of the affordable housing scheme, where some people acquire the houses cheaply and sell them in the open market for profit.
The Bill, however, brings into the tax net the income of the National Housing Development Fund (NHDF) as well as cash withdrawn from NHDF to buy a house by a contributor who is a first-time homeowner. These two proposals may hinder affordable housing accessibility, thereby undermining the constitutional provisions on accessibility to housing. The proposal to tax withdrawals from the fund will negatively impact the government’s push to have potential homeowners start saving early in anticipation of owning a house in the future.
Value added tax (VAT) on various financial services
Demonstrators rejecting the finance bill 2024. [Photo/business daily]Another proposal that may have an adverse effect on the housing sector is the introduction of a value added tax (VAT) on various financial services. If the proposal is adopted, it is expected that the cost of financial services, including mortgages, will rise, leading to higher homeownership costs.
A positive proposal in the Bill for the housing sector is the removal of the excise duty rate on cement clinkers, which was at the higher of $0.01 per kg or 10 per cent of the value. Cement clinker is a raw material used in the production of cement. The exemption of cement clinker from excise duty is expected to reduce the price of cement, leading to enhanced construction activities.
The Bill has also proposed to reduce the export and investment promotion levy on cement clinker from 17.5 per cent to 10 per cent of the customs value, a move that would further boost the construction industry.
Successive governments have prioritised housing, as evidenced in initiatives such as Kenya’s Vision 2030 and the Big Four Agenda. Despite these efforts, challenges like financing, land access, and bureaucracy have hindered progress.
The affordable housing initiatives
Housing and settlement are one of the core pillars of the Bottom-Up Economic Transformation Agenda. Through the Affordable Housing Program (AHP), the government targets to support the provision of at least 250,000 affordable houses to Kenyans every year.
Some of the Finance Bill proposals highlighted reflect the government’s attempts to promote affordability, stimulate construction, and streamline property transactions in the housing sector. The affordable housing initiatives, as evidenced by the Affordable Housing Program and legislative interventions, also signal a positive stance toward resolving the housing crisis. However, challenges persist, requiring continued implementation efforts to achieve housing rights for all Kenyans.
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Conclusion
In conclusion, the Finance Bill 2024 brings changes that have immense implications for Kenya’s economy and its citizens. As these tax reforms come under scrutiny, it becomes evident that their implementation will require careful consideration of their broader economic impact.
While the intention behind the bill is to bolster government revenue and streamline the tax system, it is essential to balance these goals with the need to foster sustainable growth and development. The real estate sector, along with other key industries, will need to navigate these new financial landscapes, potentially redefining strategies to adapt to the evolving fiscal environment. Sooner or later, the success of these proposals will depend on how they are executed and the government’s ability to combat the effects on businesses and individuals alike.