World Bank pushes for housing and health levy relief for low-income workers

The World Bank has called on Kenya to exempt workers earning less than Sh32,333 a month from paying the housing tax and contributions to the Social Health Insurance Fund (SHIF), saying the levies are reducing their take-home pay and hurting the job market.

In its 2025 Public Finance Review report, the World Bank says the levies have worsened the burden on workers and employers and are unpopular with the public, despite President William Ruto’s support for the deductions meant to fund affordable housing and universal health coverage.

"Revisit the Housing Levy, especially for employees with wages of up to Sh388,000," the World Bank says.

"Consider removing SHIF contributions for low-wage formal workers. This potential reform could encourage formalisation and reduce labour market distortions, as well as cover SHIF services for poor and informal workers and low-wage formal workers, funding the gap through the budget."

The recommendation targets over 312,000 workers in the formal sector who earn less than Sh30,000 per month. This group makes up 10% of Kenya’s 3.1 million formally employed workers.

The World Bank says exempting them from the deductions would improve their spending power and help reduce inequality.

Workers have seen their pay shrink since the introduction of the housing levy in June 2023 and the SHIF deductions in October 2024.

The housing levy takes 1.5% of a worker’s gross monthly salary, matched by the employer. SHIF contributions are set at 2.75% of gross salary but are not matched by employers.

These deductions have pushed thousands of workers below the legal limit that requires employees to take home at least one-third of their salary.

The Employment Act bars employers from cutting more than two-thirds of an employee’s pay, creating legal and compliance challenges for companies, especially those with staff already paying off loans.

Employers warn that the new levies, combined with existing obligations, have made it difficult to stay within the law. The Federation of Kenya Employers (FKE) says the government has not responded to requests for guidance on the matter.

"The Housing Levy has a long genesis. It is relatively unpopular and civil society organisations have taken the government to court over it," the World Bank says.

"The Housing Levy is a payroll tax that raises the relative cost of labour and thus reduces formal employment."

The World Bank further argues that the SHIF structure discourages businesses and workers from entering the formal sector, a situation that threatens the fund’s long-term future.

"The payroll tax design discourages formalisation, particularly for low-wage workers and small employers who face higher costs when joining the formal sector," the report notes.

"This creates a structural contradiction: SHIF depends on formalisation to succeed yet actively undermines it."

The Bank recommends using the national budget to fill the gap that would be left if low-wage workers were exempted from SHIF, while still ensuring they are covered by the health services.

The proposed relief would give a worker earning Sh30,000 an extra Sh956.25 in their payslip, increasing their net pay to Sh27,150 from Sh26,193.75.

The only deductions would be Sh1,800 for the National Social Security Fund (NSSF) and Sh1,050 in income tax.

The report highlights that real wages in Kenya have fallen for five straight years, showing a continued decline in living standards as the cost of living rises.