Government plans to scrap tax relief for affordable housing projects

The push to provide affordable housing in Kenya may face new hurdles after the Treasury moved to scrap tax relief on materials used to build the houses.

The Finance Bill 2025 proposes to remove the VAT exemption on goods imported or bought locally for direct and exclusive use in affordable housing.

If passed, this means developers will be required to pay tax on key materials, which could raise construction costs.

The current law allows a tax exemption for projects approved by the Housing Cabinet Secretary.

To enjoy this benefit, developers must apply in advance to the State Department for Housing.

Once the application is approved, it is forwarded to the Treasury Cabinet Secretary and then to the Kenya Revenue Authority for action.

The Affordable Housing Programme was first launched in 2018 during former President Uhuru Kenyatta’s time as part of the Big Four Agenda.

Since then, tax incentives have played a major role in attracting investment into the sector.

President Ruto’s administration has since introduced its own financing model.

In 2023, the government introduced a compulsory housing levy through the Finance Act, but it was declared unconstitutional by the courts.

A new legal framework was later introduced under the Affordable Housing Act 2024, which was signed into law in March.

From July 2023, Kenyan workers have been contributing 1.5% of their monthly salaries to the housing fund, and their employers match that amount.

The government had set a target to build 200,000 houses every year under the scheme.

However, this goal has not been met.

If the tax exemption is removed, the cost of building affordable homes could go up, possibly slowing down the programme.

The move by the Treasury comes at a time when the housing plan is already struggling to meet its targets despite the new funding model.

The Finance Bill is now before the National Assembly.