Affordable Housing Fund Board Chairperson Jeremiah Simu told the National Assembly’s Finance and National Planning Committee to insert a new clause in the Tax Procedures Act to enable the KRA to recover the unremitted housing levy.

“KRA itself has acknowledged the limitation, confirming that although it is mandated to collect the Levy, enforcement falls outside its legal mandate,” he said.

He spoke while appearing before the committee chaired by Molo MP Kuria Kimani during public participation on the Bill on Wednesday.

Mr Simu said the board estimates that, since the levy was established, more than Sh100 billion has been evaded so far, despite employers deducting it from employees.

He said the fund loses about Sh3 million monthly due to employers’ failure to remit the levy to the Affordable Housing Fund Board.

“To collect the Sh100 billion that employers have failed to remit, we need to ensure that the KRA is empowered by the law to enforce the payments,” said Mr Simu.

“We are currently engaging with the KRA, which is keen to assist us in recovering all the outstanding levy that has not been remitted. We want to ensure that KRA is appropriately motivated despite the constraints in law.”

The Affordable Housing Levy Fund Act 2024 requires employers to deduct 1.5 percent of employees’ salaries and match the same for the construction of affordable housing units.

Mr Simu said the KRA collects the levy but has no enforcement mandate under the Affordable Housing Act, and Section 7 provides a penalty but no audit, assessment or recovery machinery.

“The amendment closes the gap and protects compliant contributors. It empowers the Commissioner, where he is the collector of a fee, levy or charge under any other written law, to recover unremitted or unpaid amounts as a civil debt due to the government as if they were unpaid tax,” Joseph Kagicha, the Fund chief executive said.

“The Auditor-General found a legal gap that allows evasion of the Levy. The State Department strongly supports the proposed insertion of a new Section 39B in the Tax Procedures Act (Cap. 469B).

This amendment responds to a documented and officially acknowledged gap, not a hypothetical one.”

Mr Kagicha said the Auditor-General’s audit of the Affordable Housing Fund found that workers and firms are evading the levy, that the Board has no mechanism to establish what should be collected, and that KRA has no power under the Affordable Housing Act, 2024 to enforce compliance by employers.

“KRA itself has acknowledged the limitation, confirming that although it is mandated to collect the Levy, enforcement falls outside its legal mandate,” Mr Kagicha told MPs.

“Section 7 of the Act imposes a penalty of 3 percent per month on unremitted levy and allows summary recovery as a civil debt, but it supplies none of the audit, assessment, investigation or recovery machinery that effective collection requires,” he said.

“The Act simply did not import the administrative toolkit of the tax statutes.

The consequence is that the Levy currently relies on the goodwill of compliant employers and employees, while evaders face no practical enforcement. This is an equity problem before it is a revenue problem: every compliant contributor is, in effect, subsidising those who default.”

Mr Kagicha said the proposed Section 39B to the Tax Procedures Act closes the gap with a clean, general mechanism and protects the integrity of a constitutionally grounded, ring-fenced Fund.

He said the proposed amendment simply gives the collector the legal authority to recover amounts that are already due in law.

“When properly remitted, the levy performs strongly. As we have seen, collections reached approximately Sh73.2 billion in the 2024/25 financial year, exceeding target,” Mr Kagicha said.

“The outstanding issue is non-remittance, concentrated in the informal sector and among non-compliant employers. Equipping the collector to address it is squarely in the public interest.”

The State Department for Housing also opposed the imposition of the Value Added Tax on affordable housing construction.

The Ministry further wants MPs to extend the relief to construction services for affordable housing.

Mr Kagicha said the tax relief should extend beyond goods to the supply of services for the direct and exclusive use in constructing affordable housing.

He said the program presently bears 16 percent VAT on contractor and professional services, which is irrecoverable against an exempt housing output and feeds directly into unit prices.