The KRA has been collecting the levy equivalent to 1.5 percent of gross pay or income from July 2024, but lacked the legal powers to crack down on defaulters, allowing thousands of workers and firms to evade payment.

The Finance Act 2026 plugged the loophole and offered the KRA higher commissions for the taxman on collection of housing levies, whose collection in the year to June stood at Sh79.9 billion.

Housing Principal Secretary Charles Hinga said the government now expects “greater bite” from the KRA after the authority insisted on explicit legal powers before pursuing employers who deducted the levy from workers but failed to remit it.

“KRA said they needed explicit powers to recover unremitted or unpaid amounts,” Mr Hinga said Friday in responses to the Business Daily, signalling that the ministry now expects stronger enforcement.

An audit of the Affordable Housing Fund, which manages the billions of shillings the government gets from the levy, revealed that thousands of taxpayers were paying tax and not the housing levy.

Default rates were found to be higher in the informal sector where traders were not paying the levy and businesses such as corner shops, salons and bars were not remitting deductions from their staff pay.

The Auditor-General’s checks revealed that 6,390 companies remit Pay-As-You-Earn (PAYE) tax, which the KRA has powers to enforce compliance, and not the housing levy.

Mr Hinga said the KRA would begin internal reconciliations to identify unpaid levy and enforce recovery.

“They are now able to assess, evaluate and prosecute taxpayers who have not remitted. Internally, they [KRA] are going to do reconciliations and do what they need to do,” he said.

The levy, which was introduced in 2024, is intended to pay for the construction of affordable housing for low-income Kenyans.

But it sparked an outcry from the opposition and a large section of the population who feel burdened by a raft of new taxes.

An earlier law has left out the informal sector workers from paying the levy, triggering discrimination concerns. The High Court suspended collections for three months after ruling that the levy was unconstitutional for targeting the formal employment.

Parliament responded by passing the Affordable Housing Act, 2024, which broadened the framework to include workers in the informal, or jua kali, sector, allowing collections to resume from March 2024.

The Finance Act 2026 introduced Section 39B of the Tax Procedures Act, empowering the KRA Commissioner-General to recover unpaid fees, levies and charges collected under the law as though they were unpaid tax liabilities.

The change has expanded the KRA’s enforcement mandate beyond ordinary taxes and allows it to deploy the same recovery procedures used against tax defaulters.

It will hinge on section 42 of the Tax Procedures Act, which empowers the KRA to deactivate PINs, issue travel bans, collect cash due from the taxpayer’s banker and suppliers and freeze assets.

The KRA can order third parties—such as banks holding a defaulter’s money—to surrender funds directly to cover unpaid obligation.

The taxman can order third parties—such as banks holding a defaulter’s money—to surrender funds directly to cover unpaid obligations under the so-called garnishee orders.

Non-compliant firms and workers risk the suspension or deactivation of their KRA PIN, blocking business operations. The taxman can place restrictions or secure claims on properties and land to recover outstanding public debt. Amounts of Sh100,000 or less may be recovered through summary procedures.

Until the amendments took effect, the KRA reckoned that enforcement of unpaid housing levy fell outside its legal mandate despite being responsible for collecting the duty.

The Affordable Housing Fund Board in submissions to Parliament argued that the taxman needed explicit legal authority before it could act.

“KRA itself has acknowledged the limitation, confirming that although it is mandated to collect the levy, enforcement falls outside its legal mandate,” the board told the National Assembly’s Finance and National Planning Committee in June.

“We are currently engaging with the KRA, which is keen to assist us in recovering all the outstanding levy that has not been remitted.”

Treasury records show housing levy collections have exceeded Sh200 billion since the levy was introduced in July 2023, rising from Sh54.16 billion in 2023/24 to Sh73.20 billion in 2024/25 and Sh79.10 billion in 2025/26.

Despite those collections, the Affordable Housing Fund Board estimates that more than Sh100 billion has been evaded, with employers, especially in informal sector, accused of failing to remit deductions.

The scale of the suspected arrears looks set to turn the housing levy into one of the largest non-tax recovery targets for the KRA.