Kenya’s Affordable Housing Levy: The Legal Basis, Rate, and Who Must Pay

Every payslip in Kenya now carries a 1.5% deduction that did not exist before 2024, and every employer must match it with 1.5% from its own pocket. The Affordable Housing Levy is charged under a standalone statute, the Affordable Housing Act, 2024, after an earlier version introduced through the Finance Act, 2023 ran into successful constitutional litigation over how it had been brought into law. The levy survived that history and is now a fixed, ongoing payroll cost for every employer and a live compliance obligation for the self-employed. This article covers what the Act actually charges, at what rate, and on whom; a companion piece covers the deduction, remittance, and penalty mechanics.

The Legal Basis: The Affordable Housing Act, 2024

The levy is charged under the Affordable Housing Act, No. 2 of 2024, assented to on 19 March 2024. Sections 4 and 5, which establish and impose the levy, came into force on the date of assent itself, with the remainder of the Act commencing on 21 March 2024. The Act replaced the levy that had first appeared in the Finance Act, 2023, after that earlier provision was successfully challenged on the basis that a levy of this kind needed its own clear legal and administrative framework rather than a clause inserted into a general finance statute. Parliament responded by re-enacting the levy as a dedicated Act, giving it its own charging provision, collection mechanism, and enforcement structure.

The Rate: Section 4

Section 4 fixes the levy at one and a half percent. It applies to two separate bases depending on the person: one and a half percent of the gross salary of an employee, or one and a half percent of the gross income received or accrued by a person whose income is not already caught under the employee limb, which covers self-employed and other non-salaried persons. The Act does not itself define “gross salary” or “gross income,” so the scope of what counts, basic pay alone, or basic pay plus allowances, bonuses, and benefits in kind, is not settled by the charging section and has been a genuine point of uncertainty for payroll administrators since the levy took effect.

Who Actually Pays: Section 5’s Matching Obligation

Section 5 is what makes the levy more expensive than its headline rate suggests. It requires an employer to deduct one and a half percent from an employee’s gross salary, and separately requires the employer to remit an amount equivalent to the amount deducted, from its own funds. The practical effect is a combined levy of three percent of gross salary on every employment relationship in Kenya, one and a half percent borne by the employee through payroll deduction and one and a half percent borne by the employer as a direct cost, even though the statute states the rate as one and a half percent throughout. A business budgeting for the levy purely on the headline rate will understate its actual payroll cost by half.

Where the Money Goes

Levy proceeds are remitted to the Affordable Housing Fund, established under the Act and overseen by the Affordable Housing Board, which finances the design, development, and maintenance of affordable and institutional housing and associated infrastructure. The Act sets out eligibility criteria for housing units funded this way and restricts resale of allocated units without the Board’s consent, but those provisions govern access to housing rather than the payroll obligation itself. For an employer or self-employed taxpayer, the levy functions as a straightforward statutory deduction rather than a scheme they interact with directly, the connection to actual housing allocation is administered separately by the Board.

Practical Implications

Because the levy is charged on gross salary rather than net pay or a narrower definition such as basic salary, employers should assume it applies to the full range of cash components ordinarily treated as part of an employee’s regular remuneration unless and until KRA guidance or an amendment narrows that base. Businesses that have historically structured pay with a large allowance component should review whether their payroll systems are calculating the levy on the correct base, since the absence of a statutory definition of gross salary means this is a judgment call employers are making without a bright-line rule in the Act itself. The three percent combined cost should also be built into headcount and compensation planning, since it applies from the first shilling of gross salary with no threshold below which small employers or low earners are exempt.