Legal Gap Allows Thousands of Firms to Evade Housing Levy

A significant oversight in the Affordable Housing Act of 2024 has left the Kenya Revenue Authority (KRA) without the necessary teeth to enforce compliance, leading to widespread evasion by thousands of employers. In a report released on Tuesday, March 17, 2026, Auditor-General Nancy Gathungu detailed how firms and workers are bypassing the mandatory 1.5 percent monthly housing levy deductions.

The audit identifies at least 6,390 companies that have continued to remit Pay-As-You-Earn (PAYE) taxes while completely ignoring their obligations to the housing fund. This discrepancy has raised alarms regarding the long-term sustainability of the government's ambitious infrastructure and residential development goals, which rely heavily on these steady streams of public contribution.

Under the current legal framework, the KRA is designated as the collector of the levy, but the Act failed to grant the taxman the explicit enforcement powers required to crack down on those who default. Instead, the responsibility for oversight sits with the Affordable Housing Board. This structural mismatch creates a vacuum, as the board does not have direct access to taxpayer data or the specialized recovery mechanisms that the KRA utilizes for other tax heads.

The loophole allows businesses to maintain payroll records that satisfy basic income tax requirements without triggering the automatic penalties usually associated with statutory defaults. For the construction sector, this shortfall in collection poses a direct threat to the financing of massive social housing projects currently underway across the country.

Legislative critics had previously warned that rushing the Affordable Housing Act through Parliament might leave technical gaps. The Auditor-General's findings now confirm that without an urgent amendment to synchronize the KRA's collection mandate with investigative and punitive powers, the fund remains vulnerable to further leakage.

Current regulations suggest a 3 percent penalty for unpaid funds, yet the lack of a clear enforcement bridge between the collector and the board makes the actual recovery of these civil debts difficult. For now, thousands of workers and their employers remain in a gray area, benefiting from a system that demands contribution but lacks the legal infrastructure to ensure it is paid.