The Finance Act 2023 has introduced a new financial obligation for employees, known as the Affordable Housing Levy (AHL), effective from 1st July 2023 and the Kenya Revenue Authority (KRA) has been designated as the collecting agent for this levy.
In light of this development, the KRA has issued a comprehensive clarification regarding the AHL to ensure accurate implementation and understanding among taxpayers.
Clarification on Gross Monthly Salary:
The KRA defines the components of the "gross monthly salary" as inclusive of the basic salary and regular cash allowances.
This encompasses various types of allowances, including housing, travel, and commuter allowances, as well as car allowances and other recurring cash payments.
However, it is important to note that non-cash benefits and irregular payments, such as leave allowances, bonuses, gratuities, pensions, severance pay, or any other terminal dues and benefits, are excluded from the definition of gross monthly salary.
This distinction aims to provide a clear delineation of what constitutes taxable earnings for the AHL.
Inclusive Coverage for Employees:
The KRA has emphasized that the Affordable Housing Levy applies to all employees, irrespective of their contract of service.
This means that regardless of the nature of employment or the specific terms outlined in individual contracts, all employees will be subject to the AHL.
This inclusive coverage ensures that the levy is uniformly applied to the entire workforce, creating a consistent and equitable contribution system.
Impact on Affordable Housing Relief:
The KRA's clarification further highlights the relationship between the Affordable Housing Levy and the Affordable Housing Relief provision.
Taxpayers who are already contributing to the housing levy as stipulated in Section 31B of the Employment Act will not be eligible to benefit from the Affordable Housing Relief provided under Section 30A of the Income Tax Act Cap. 470.
This linkage underscores the interplay between different fiscal measures and seeks to prevent any potential double benefits for individuals fulfilling specific housing-related financial obligations.
As the Affordable Housing Levy takes effect, the Kenya Revenue Authority's clarifications are intended to guide both employers and employees in understanding the implementation of this new financial responsibility.