The Kenyan government has introduced a two per cent penalty for employers who fail to remit the Affordable Housing Levy (AHL) following the lifting of conservatory orders against the implementation of the Finance Act 2023 by the Court of Appeal.

In a notice published on Friday, August 4, the Kenya Revenue Authority (KRA) clarified that employers are obligated to remit the 1.5 per cent Housing Levy deduction by the ninth of every month. Additionally, employers are required to pay their 1.5 per cent contributions within the same period, totaling 3 per cent.

As a result of the backdated AHL implementation, employers are expected to remit deductions for both July and August 2023 by September 9. Failure to comply will result in a two per cent penalty on the unpaid funds each month.

For example, if an employer fails to remit Ksh200,000 in total for the two months' contributions, they will be liable for a penalty of Ksh4,000.

Monthly AHL deductions are to be remitted to the government through KRA agent banks or mobile money platforms. Employers are also required to declare the AHL under sheet "M" of the PAYE return on iTax and generate a payment slip under the tax head agency revenue.

The Ministry of Lands and Housing had backdated the Housing Fund, resulting in employees facing additional deductions from their August salaries. For instance, a Kenyan earning Ksh20,000 was initially expected to pay Ksh300, but with the backdating, Ksh600 will be deducted from the August pay.

Moreover, other elements of the Finance Act, including increased PAYE rates for those earning above Ksh500,000, were also backdated. Those earning between Ksh500,000 and Ksh800,000 will pay 32.5 per cent of their salary for PAYE, while those earning above Ksh800,000 will pay 35 per cent.

However, the Law Society of Kenya (LSK) has filed an appeal against the Finance Act 2023 at the Court of Appeal, seeking to block the government from implementing the new taxes. LSK argues that the new taxes are unconstitutional and impose further financial burdens on Kenyans already grappling with a high cost of living. The outcome of the appeal remains to be seen as the government seeks to enforce the backdated taxes and levy penalties on non-compliant employers.