MPS query fate of Sh4.2b earned from trading housing levy funds

MPs have questioned the exclusion of interest earned from the investment of the ="https://www.standardmedia.co.ke/business/business/article/2001512279/state-struggles-to-justify-contentious-housing-levy">Housing Levy funds< in Treasury Bills in the budget for the next financial year.

They also raised concerns about who is pocketing the billions of shillings earned in interest. The State Department for Housing and Urban Development had loaned the government some Sh46 billion through Treasury Bills.

The funds, according to the National Assembly’s Budget and Appropriations Committee (BAC), earned Sh4.2 billion in interest, which has however not been factored into the budget for the financial year 2025/26.

The committee now appears to question beneficiaries of the interest earned from lending to the government, noting that the money had not been budgeted for use over the ="https://www.standardmedia.co.ke/national/article/2001517110/cs-mbadi-hints-at-additional-taxes-in-kenyas-2025-26-budget-plan">2025/26 financial year<.

“The State Department for Housing and Development reported earning Sh4.2 billion in interest income from funds invested in Treasury Bills, however, this has not been factored into the 2025/26 budget estimates,” said committee chair Samuel Atandi.

BAC has been talking to different Parliamentary committees as well as Kenyans in some counties to get their views on the ="https://www.standardmedia.co.ke/national/article/2001520431/mps-fault-treasury-on-budget-cuts-amid-high-cost-of-living">2025/26 budget< estimates and has this week tabled the report in Parliament that is now set to debate it.

Investments in Treasury Bills by the Ministry saw Kenyans express displeasure, questioning why the money was not being directed to building affordable homes.

They also wondered who would be collecting the interest earned from the process of the Ministry trading in government bonds.

BAC further revealed that the money that the government collected through the ="https://www.standardmedia.co.ke/coast/article/2001519636/raila-faults-mps-bid-to-retain-cdf-says-housing-levy-should-be-a-fund">Housing Levy<, which remains unused, is expected to increase by Sh30 billion over the next financial year. 

This raises concerns over the state’s capacity to absorb the funds that were aimed at improving quality of housing in the country. The high rate of unused funds could also gives credence to the arguments by many Kenyans that the 1.5 per cent levy was set at a high rate.

“The committee observed that appropriation-in-aid (AIA) allocation from the Housing Levy is expected to rise by Sh30.3 billion in the financial year 2025/26  due to unutilised carryovers from the previous financial year,” said the Committee.

The under absorption has in part been the reason why the State Department of Housing invests the funds in Treasury Bills. Kenyans expressed displeasure when it was revealed that the government had been investing the money collected through the levy in Treasury Bills.

They questioned why the cash was not being directed to building affordable homes and who would be collecting the interest earned from the process where the government traded in government bonds.

In the first year of implementing the housing levy, the government collected Sh54.6 billion from Kenyans. This has since grown substantially and reached Sh88 billion in the 11 months to May over the current financial year.

Treasury expects to collect Sh96 billion over the 2025/26 financial year. The collections appear to have exceeded Treasury’s expectations, which had projected that it would collect Sh70 billion over the 2024/25 financial year and reach Sh89 billion in the 2026/27 financial year.

The Housing Levy, initially introduced by the Finance Act 2023, has been one of the most fought levies in the country in recent past, with stakeholders challenging its constitutionality before Parliament put in place a legal framework for the levy.

There have been calls to review the levy to give back some disposable income to Kenyans. 

National Treasury Cabinet Secretary John Mbadi on Wednesday said a review of the levy is under consideration. “There is a discussion to restructure it because it has serious benefits and quite a number of projects are coming up, but at the same time, the individual employees have complaints which you cannot ignore. A lot of restructuring is going on and there will be pronouncements in due course,” he said on Friday when he addressed the Senate on Wednesday.

The World Bank too has in a recent report advised the government to do away with the ="https://www.standardmedia.co.ke/business/business/article/2001519198/fke-urges-state-to-reduce-sha-housing-levy-deductions-to-save-businesses">unpopular housing levy< for employees earning less than Sh32,000 per year. 

“Combining the personal income tax rate reform with exempting low earners from the housing levy would further reduce the average tax rate for below-average wage earners, while increasing the burden on top earners to 34.8 percent to maintain revenue neutrality,” said the World Bank in a recent report titled Beyond Budget – Fiscal Policy for Growth and Jobs

“Given the small contribution from below-average earners, shifting the tax burden from low-income earners to the top income deciles is expected to have a minimal impact on revenues, yet would make the tax system more progressive.”

In the budget estimates for 2025/26, the State Department for Housing and Urban Development has allocated Sh119 billion. This is a significant increase from Sh74.66 billion allocated to the state department overseeing development of government’s affordable houses this year. This, according to budget documents, includes Sh95 billion from the Affordable Housing Fund.

And even as the State Department is awash with money, the Budget and Appropriations Committee noted that some of the housing projects within the Ministry are suffering and are on the verge of being abandoned by the developers owing to the lack of funds.

These include donor funded projects where the government is required to make contributions. The Ministry has failed to meet these obligations, with the projects that include upgrading of informal settlements almost grinding to a halt.

“Three donor-funded projects, namely the Kenya Informal Settlements Improvement Project (KISIP II), the Kenya Urban Support Programme (KUSP II) and the Kenya Informal Settlements Redevelopment Project (KISRIP), are being implemented. However, the counterpart funding amounting to Sh34 million falls short of obligations outlined in respective financing agreements, calling for enhanced government exchequer allocations. That is, Sh374 million for KUSP II, Sh416 million for KISP II and Sh100 million for KISRIP,” said the World Bank in the report.