A bill for AN ACT of Parliament to amend the law relating to various taxes and duties; and for matters incidental thereto for the financial year 2024-2025.
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Following the withdrawal of the Bill, the Finance Act 2023 is still operational. Nonetheless, below are the provisions of the Finance Bill 2024 that would have impacted the real estate sector in Kenya:
1. Contributions to the affordable housing levy to be tax deductible
The Finance Bill 2024 proposed the amendment of Section 15 of the Income Tax Act to allow for payments under the Affordable Housing Act 2024, specifically the 1.5% of the gross income payable by an employee, to be tax-deductible.
If implemented this would have reduced the tax burden.
2. Changes to the Export and Investment Promotion Levy.
This levy was introduced through the Finance Act 2023 and it was levied on goods imported into Kenya, other than goods originating from East African Community Partner States. The levy was charged at rates of 10% and 17.5% of the customs value of certain specified imported products, specifically raw materials used for manufacturing value addition. These raw materials include steel billets and cement clinkers.
The aim of the levy was to spur the growth of the domestic manufacturing industry. It however translated to increased costs. According to the Kenya Association of Manufacturers, the cost of construction increased by at least 40% due to the introduction and implementation of this levy.[i]
The Finance Bill 2024 proposed the following changes to the rate of the levy as well as an expansion to the scope of products subject to the levy which would have an impact to the real estate sector, particularly on the cost of construction.
Description
Current Rate
Proposed Rate
1.
Cement Clinker
17.5%
10%
2.
Semi-finished products of iron/non alloy steel (measuring less than 14mm in diameter and the cross section measuring less than 8mm)
17.5%
Deletion
3.
Bars and rods of iron or non-alloy steel, hot rolled, in irregularly wound coils of circular cross-section measuring less than 14mm in diameter.
17.5%
Deletion
4.
Furniture (including wooden furniture for office, kitchen, bedrooms, plastic, bamboo, rattan, cane/osier or similar material
Not subject
3%
5.
Ceramic sinks, washing basins, cisterns, urinals, bidets, baths and similar sanitary fixtures
Not subject
3%
3. Lifting of the restriction on the sale of affordable housing units
The Finance Bill 2024 proposed deleting Section 54 of the Affordable Housing Act, 2024, which restricted the sale of affordable housing units save with the prior written consent of the Affordable Housing Board.
This streamlines real estate transactions but poses the risk of abuse of the Affordable Housing Program with individuals purchasing units at lower prices and later reselling them at a profit in the market.
4. Removal of the Affordable Housing Contribution Relief
The Affordable Housing Act 2024 amended the Income Tax Act by introducing Section 30A which entitled an individual to affordable housing relief in every year of income that they paid affordable housing levy.
The Finance Bill 2024 proposes the amendment of Section 30A of the Income Tax Act to limit entitlement to affordable housing relief to only the year of income the person: is eligible to make an application under an affordable housing scheme; has applied and is waiting for allocation of a house under the scheme; and is saving for purchase under an affordable housing scheme.
5. Mortgage interest deduction
The Finance Bill 2024 proposed an increase in the allowable deduction for mortgage interest from KES 300,000 to KES 360, 000 per annum.
The aim was to incentivize home ownership.
6. Removal of VAT exemption of insurance of real estate products
The Finance Bill 2024 proposes the removal of VAT exemption on insurance which is likely to affect real estate products such as mortgage insurance. This would have resulted in the increase of cost of mortgage loans as insurers would likely pass the cost to consumers.
7. Removal of various income tax exemptions
The Finance Bill 2024 proposed the repeal of the following tax exemptions on:
8. Removal of the preferential corporate income tax rate
The Finance Bill 2024 repeals the preferential corporate income tax rate of 15% for companies that have constructed at least one hundred units annually. This preferential tax rate was subject to the approval of the Cabinet Secretary responsible for housing.
9. Increase in import declaration fee
The Finance Bill 2024 proposed an increase in the Import Declaration Fee from 2.5% to 3%. This would have had a negative impact on the cost of construction materials.
[i] KAM Statement on the Finance Bill, 2024 <>