President Uhuru Kenyatta on Wednesday 18th July, 2018 assented the Tax Laws (Amendment) Act, 2018 which introduces a raft of changes to the country’s tax laws regime. Among its provisions that will touch on the housing sector include the following:
The Act makes strides to fulfill the government’s agenda of providing affordable housing through effecting a stamp duty exemption for first time house buyers under the affordable housing scheme.
This will be a big relief for those seeking to purchase homes under the affordable housing scheme since stamp duty is either 2% or 4% of the value of the property, depending on whether the said property is situated in a rural or urban area. While ‘affordable housing schemes’ has not been defined, affordable housing generally refers to facilitation by the government of housing for rent or sale below market rates for low or middle income households.
Similarly, for those investing in Home Ownership Savings Plans who are not already home owners, tax deductions have been doubled from K.shs. 4,000 per month (or K.shs. 48,000 per year) to K.shs. 8,000 per month (or K.shs. 96,000 per year).
While laudable, this needs to be increased further to reflect the high prices for homes in Kenya. The Home Ownership Savings Plan was introduced in 1996 as a 10-year saving scheme for people who save to acquire homes or are building deposits for easy access to mortgages.
The Stamp Duty Act has also been amended to allow the Collector of Stamp Duty to refer valuation of property for the purpose of stamp duty to a registered and practicing valuer. This will have the effect of fast-tracking valuation in the Ministry of Lands as it will no longer be limited to government valuers.
Another notable change in the Act includes amendment to the V.A.T Act to remove several items from zero rated status to exempt status hence limiting zero rating to exports.
Taxable goods and services fall in three categories where V.A.T rates are concerned: those taxed at the standard rate of 16%, those that are zero rated and those that are exempted.
Where the goods or services are ‘zero rated’, the government will not tax their sale but will give credits for V.A.T paid on inputs used to produce them. If ‘exempt’, the government will still not tax the sale but the suppliers cannot claim a credit for the V.A.T they used on inputs. Therefore, zero- rating goods will have the effect of lowering the prices imposed on the final consumers while exempting them will lead to a raise in prices as the suppliers seek to pass on the non-recoverable costs to consumers.
In this way, the new Act will herald a rise in the prices of certain commodities such as bread, supply of liquefied petroleum gas and medicine.
The Tax Laws (Amendment) Act, 2018 can be found here.
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