Housing levy: What KRA can do to recover unpaid cash

This story has significance for readers across Kenya and beyond.

The Kenya Revenue Authority (KRA) is expected to start a crackdown on housing levy defaulters after the tax agency got legal powers to recover arrears and punish those in breach.

The powers follow amendments contained in the Finance Act, 2026, giving the KRA teeth to recover outstanding unpaid fees, levies and charges collected on behalf of government.

The Affordable Housing Fund has collected more than Sh200 billion since the levy was introduced, but estimates that more than Sh100 billion has either remained unpaid or been evaded.

Here is what the new enforcement regime means for workers, employers, informal-sector workers and other levy payers.

Who is required to pay the housing levy and how much?

The Affordable Housing Act, 2024 requires employers to deduct 1.5 percent of an employee’s gross monthly pay and remit it to the Affordable Housing Fund.

Employers must make a matching contribution of another 1.5 percent, bringing the total contribution to three percent of gross monthly earnings.

The law also covers people outside formal employment, including informal-sector workers, traders and other self-employed Kenyans who pay 1.5 percent of gross income.

For workers and traders, the levy applies to a single income, meaning additional earnings from side hustles are not separately subjected to the housing levy.

Why was the housing levy changed after its introduction?

The original levy, introduced in July 2023, applied only to workers in formal employment.

That arrangement triggered legal challenges, with critics arguing that requiring only formally employed workers to contribute amounted to unequal treatment.

The Court of Appeal subsequently suspended the levy for two months, disrupting collections during its first year.

Parliament responded by passing the Affordable Housing Act, 2024, which broadened the contribution base to include informal-sector workers.

Collections resumed in March 2024 under the new framework, intended to address the discrimination concerns while creating a broader funding base for President William Ruto’s affordable housing programme.

What was wrong with the previous enforcement system?

KRA collects the housing levy on behalf of the government, with the money going into the Affordable Housing Fund.

The problem was that KRA’s responsibility to collect the levy was not matched by equally clear powers to recover unpaid amounts using the enforcement machinery available for ordinary tax debts.

Before July 2026, KRA could collect the levy but lacked explicit authority under the Tax Procedures Act to recover unpaid housing levy as though it were an ordinary tax liability.

What changed on July 1, 2026?

The Finance Act, 2026 amended the Tax Procedures Act by introducing Section 39B, giving the KRA Commissioner-General power to recover unpaid fees, levies and charges collected on behalf of Government as though they were unpaid tax.

In practical terms, KRA can now use the recovery machinery contained in the Tax Procedures Act to pursue outstanding housing levy.

Housing Principal Secretary Charles Hinga said KRA had sought clear legal authority before taking stronger action against defaulters.

“KRA said they needed explicit powers to recover unremitted or unpaid amounts,” Mr Hinga said, adding that the authority could now “assess, evaluate and prosecute” taxpayers who had failed to remit the levy using own internal processes.

What can KRA now do to a defaulter?

The new law gives KRA several tools to recover unpaid housing levy.

First, it can require a third party holding money for a taxpayer, such as a bank, mobile money platform like M-Pesa or tenant, to pay that money directly to KRA.

For example, if a company owes housing levy and has money in a bank account, KRA can issue the relevant notice requiring funds to be diverted towards the outstanding liability.

Second, KRA can order the seizure of movable property belonging to a defaulter.

This could include vehicles, office equipment or stock-in-trade.

If the debt remains unpaid after the required notice period, the property can be sold to recover the amount.

Third, the authority can issue instructions to freeze or safeguard transaction accounts and financial flows where necessary to prevent a taxpayer from moving or dissipating assets before recovery.

Fourth, KRA can place a charge or security notation on land or other immovable property belonging to a defaulter.

These powers give KRA more leverage than simply demanding payment or beginning conventional civil recovery proceedings.

Does KRA have to go to court before recovering the money?

Not in every case. The Tax Procedures Act allows summary recovery of amounts not exceeding Sh100,000, enabling KRA to use a faster process rather than pursuing lengthy and expensive court proceedings.

For larger amounts, however, KRA must still follow the applicable procedures and legal safeguards under the Tax Procedures Act.

The significance of the new provision is, therefore, not that KRA can ignore due process, but that it now has explicit legal authority to use established enforcement mechanisms against unpaid levies.

How will KRA identify employers who have not paid?

KRA is expected to begin by reconciling its records to identify outstanding liabilities.

This could expose cases where employers deducted the employee’s 1.5 percent contribution but failed to remit it, as well as situations where employers failed to make their own matching contribution.

The Fund’s concern is that the amount collected does not necessarily represent the full amount that should have reached the Affordable Housing Fund.

The new enforcement powers are therefore aimed partly at closing the gap between what should have been collected and what was actually remitted.

Has KRA been given a bigger incentive to collect?

Yes. The Finance Act, 2026 increased the potential allocation to KRA from money collected through the Affordable Housing Fund.

Previously, KRA could receive up to 0.5 percent of collections.

The law now allows an allocation of up to two percent, subject to approval by the National Treasury Cabinet Secretary on the recommendation of the relevant Cabinet Secretary for Ministry of Lands, Public Works, Housing, and Urban Development.

The higher ceiling is intended to support KRA’s expanded role and provide an incentive for more effective collection and recovery.

The combination of stronger legal powers and a potentially larger allocation, therefore, gives KRA a greater incentive to pursue outstanding housing levy.

What does the new regime mean for employers and workers?

For employers, the biggest change is the risk of direct recovery action if they fail to remit the levy.

KRA can now deploy mechanisms that can reach bank accounts, movable assets and property, depending on the circumstances and amount owed.

For workers, the changes are particularly significant where an employer has deducted the levy from salaries but failed to send the money to the Fund.

The Government’s challenge will be ensuring that stronger enforcement translates into actual recovery of unpaid amounts.

Mr Hinga acknowledged that some employers are not paying despite the levy being in force.

“The housing levy is growing. But are there employers who are not paying? Yes,” he said.

Reporting originally appeared via Business Daily. Read the full source for additional context.