Legal Battles, Ultimatums: Kenya’s Housing Levy Saga - Money Weekly

It is that time of the week again when we look at the news headlines over the last seven days and dissect those that can affect your money. 

Welcome to yet another edition of Money Weekly.

This week;

• The housing levy saga continues, with the latest instalment being the LSK announcing that it will initiate contempt of court proceedings against KRA’s Commissioner General.
• KRA has also backtracked on its initial decision to exempt small businesses and farmers from providing eTIMS processed invoices by launching a new program dubbed eTIMS Lite.
• The government has issued new regulations aimed at curbing the alcohol and drug abuse menace, including revoking licences for all second generation liquor manufacturers.
• CBK has offered a 10 year bond with a 16% return.
• M-Pesa has processed Ksh700 million in Inua Jamii funds, benefiting 300,000 people.

For this and much more. Let’s dive in.

LSK Sues KRA as Housing Levy Saga Continues

The Law Society of Kenya (LSK) has announced that it will initiate contempt of court proceedings against the Commissioner General of Kenya Revenue Authority (KRA) over the deduction of the housing levy, which they deem illegal.

The move by LSK is the latest development in the housing levy saga. 

The LSK has also asked Kenyans who have been deducted the housing levy to volunteer their payslips to be used as evidence in the case they are preparing. They have promised to redact identifying information from the payslip to protect the volunteers from punishment.

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Attorney General

This development comes after the Attorney General (AG) advised the KRA Commissioner General against deducing the housing levy, citing a court ruling by the Court of Appeal, that the levy had no legal basis.

Court Rulings

The housing levy has been a contentious issue since its introduction in July 2023, through the Finance Act 2023. 

• Since then, it has been facing hurdles, with the first major blow being on November 28, 2023, when the High Court declared it illegal. 
• However, hours after declaring the levy unconstitutional, null and void, the High Court granted stay orders, allowing the government to continue deducting the levy until January 10, 2024. 
• January 5, 2024: Court of Appeal ordered that the status quo be maintained awaiting the court's decision on January 26, 2024.
• January 26, 2024: Court of Appeal affirmed the High Court’s ruling that the 1.5% Housing Levy meant to finance the affordable housing programme is illegal.
• February 21, 2023: National Assembly passes the government-backed Affordable Housing Bill, 2023. It is aimed at anchoring the tax in law and aligning the levy with the constitution.
• April 2024: The Senate is expected to fast track the processing of the Affordable Housing Bill, 2023 by April. 

KUPPET

Nonetheless, the government has continued deducting the levy. This has seen the Kenya Union of Post Primary Education Teachers (KUPPET) threaten the Teachers Service Commission (TSC) with legal action if their deductions are not refunded.

In the six months to December 2023, the state had collected Ksh26.8 billion out of the targeted Ksh63.2 billion for 2023/2024 financial year. 

Farmers, Small Traders to File eTims Invoices

KRA has backtracked on its decision to exempt small business traders and farmers from producing invoices through the electronic tax invoice management system (eTIMS). 

Initially, KRA had exempted farmers and small businesses with a yearly turnover of less than Ksh5 million.

KRA has now launched a new system dubbed eTIMS Lite that will accommodate non-VAT registered taxpayers. This is in a bid to expand the tax net. The system will be accessible through the eCitizen platform and USSD code *222#

The eTIMS Lite system has four main menus.

• User Management: You can create users and assign them roles appropriately
• Item Management: Used to add items that are in stock
• Customer Management: Add customer details while transacting
• Sales Management: Enter sales details

Govt Suspends Licences For All 2nd-gen Liquor Manufacturers

The government has declared drug and substance abuse a major national security threat. The Interior Cabinet Secretary has reiterated the harm that illicit alcohol has caused and is still causing in the country.

To curb the abuse of drugs, the government has issued measures to govern the trade, consumption, and abuse of illicit alcohol, narcotics, and psychotropic substances.

Some of these regulations include:

• All second generation alcohol distillers and manufacturers licences are suspended and will be vetted afresh within 21 days.
• Currently licenced distillers and manufacturers are invited to a meeting on Tuesday, March 12, 2024.
• Fresh applications will require manufacturers to have quality control laboratories operated by competent laboratory analysts.
• Alcohol manufacturers to document all traders in their distribution chain for traceability. This information is to be included in product labels.
• Any licence issued to a bar by the county government within residential areas or around schools is null and void.
• No bars or alcoholic outlets are allowed to operate beyond the stipulated time.
• All manufacturers and distillers should report counterfeits of their products, failure to which they will be deemed complicit.
• Law enforcement officers abetting, concealing, or colluding with any person to commit an offence under alcohol drinks shall be liable as per law.
• Public officers in the enforcement and compliance chain shall not own or operate a bar directly or via a proxy. Those operating one should either close down the bar or resign from public office.
• Landlords who rent out space for establishments of bars and wines-and-spirits shops in the prohibited areas shall be held liable.
• All chemists and agrovets are to submit their licences for verification within 30 days.
• Licenced pharmacists and veterinary doctors issuing prescription drugs without a prescription shall be deregistered.
• All vehicles and buildings used in storage, manufacturing, and trafficking of drugs shall be seized and deemed government property.
• Alcohol and tobacco distribution vehicles shall be branded with a specific colour at the direction of the Ministry of Interior.

Read Also: EU MPs Endorse Kenya’s Trade Deal; Other EAC Countries to Wait Longer

CBK Offers 16% Return On New Ten-Year Bond

The Central Bank of Kenya (CBK) is shifting gears from offering short and medium term bonds to offering long term bonds with its new 10-year bond at a 16% return. 

The CBK is also curbing aggressive bidding on government bonds by setting the bond return at 16%. This comes after the apex bank walked away from Ksh47.7 billion from aggressive bidders in February’s infrastructure bond sale.

The interest on the 10-year bond will be taxed at 10%. Nonetheless, the 16% return is a premium compared to the previously issued two 15-year bonds maturing in January and April 2025, which had a return of 12.85% and 12.73%, respectively.

Last year’s solo 10-year paper, which was issued in February, currently has a coupon of 14.151 percent.

M-Pesa Processes Ksh700m Inua Jamii Transfers in January

Following a directive by President Ruto during last year’s Jamhuri Day, an estimated 300,000 people have benefited from the Inua Jamii programme through M-Pesa. The Safaricom mobile money platform has processed Ksh700 million under the government cash transfer programme.

About 207,000 beneficiaries have enrolled through M-Pesa with about 100,000 yet to enrol through the USSD code *222#. The Ministry of labour is expected to have ended payments to beneficiaries through bank transfers in February. Caregivers have only March to register themselves, as this will be the last payment the ministry will payout via bank transfer.

Inflation Down to 6.3% as Food Prices Ease

The inflation rate decreased to 6.3% in February from 6.9% in January. This is after the price of food, electricity, and fuel declined, contributing to the drop in inflation.

Prices of tomatoes, sugar, maize grain, and maize flour decreased, while spinach, sukuma wiki, and wheat flour increased.

Furthermore, the appreciating shilling against the US dollar eased debt pressure and boosted investor confidence. Hence, business activity expanded across the Kenyan private sector in February.

Purchasing Managers’ Index (PMI) rose to 51.3, the highest in over a year and private sector activities rose since December, hitting above neutral 50 points for the first time since August.

Other Major Money News

Equity Bank Flights Instant PayPal Withdrawals

Equity Bank now offers instant settlement for PayPal withdrawal transactions. Previously, withdrawals had a 24-hour waiting period. Furthermore, transactions can be done in Shillings or US dollars, with a single transaction limit of $10,000 (Ksh1.4 million).

This move benefits customers such as freelancers, digital content creators, remote workers, journalists, photojournalists, and those in the hospitality industry and web-based cross-border trade.

Unit Trust Assets Growth

Assets under unit trusts or collective investment schemes increased by Ksh8.4 billion in the three months to December 2023. Capital Markets Authority (CMA) data shows assets under unit trusts rose from Ksh206.6 billion to Ksh215 billion.

Returns from unit trusts hit double-digit levels in December, outperforming fixed deposit accounts and government securities. Top unit trusts include Britam, NCBA, Sanlam, ICEA, and Old Mutual, holding 82.63% of the market share collectively.

There were 36 approved collective investment schemes with 135 funds by the end of the quarter.

Stanbic Shareholders Get Record Dividend

Stanbic Holdings raised its dividend payout by 21.8% to Ksh6.07 billion after achieving a record net profit for the year ending December 2023. Net profit for the bank increased by 34.2% to Ksh12.16 billion, driven by growth in interest income and non-funded income.

Moreover, the dividend per share increased from Ksh12.60 to Ksh15.35, marking the highest-ever payout in the lender's history. Shareholders will receive a total of Ksh6.07 billion, representing 49.9% of net earnings, compared to Ksh4.98 billion distributed in the previous year.

A final dividend of Ksh14.20 per share, totaling Ksh5.61 billion, was recommended by the directors, in addition to the Ksh1.15 per share interim dividend paid in September. The final dividend will be payable to shareholders registered on the share register on the closing date, May 17, 2024.

Read Also: Kenya Power to Charge Some Customers in US Dollars

Ksh11bn Boost to KRA

Kenya Revenue Authority (KRA) expects an additional Ksh11 billion budget allocation to boost revenue collection efforts. Initially, KRA had requested Ksh61.8 billion but was approved only Ksh23.7 billion for the 2023/24 fiscal year, less than half of the request.

The additional allocation follows KRA's failure to meet quarterly and half-year revenue targets amid economic challenges. The additional funding will be used to increase KRA personnel to address staff shortage hampering revenue collection.

The taxman aims to recruit 4,650 additional staff for effective revenue mobilisation. Additionally, it also plans to recruit 3,000 staff, 1,350 Revenue Service Assistants (RSAs), and 500 Graduate Trainees (GTs) this financial year.

The authority sought allocations for staff compensation, revenue mobilisation, operational activities, office space leasing, technology, innovation, and digitization.

This comes at a time when the High Court has declared the appointment of 1,406 RSAs as unconstitutional as it favoured particular ethnic groups.

MPs Increase Own Budget by Ksh2 Billion

Parliament has increased its budget by Ksh2 billion for the financial year starting July 1, 2024. The Treasury initially set Parliament's budget at Ksh41.62 billion, but the Budget and Appropriations Committee (BAC) increased it to Ksh43.62 billion.

The Parliamentary Service Commission (PSC) stated that proposed ceilings are insufficient to cover annual wage drift and employer contributions to the housing levy and recommended Parliament's annual allocation be pegged at 2.5% of all national government revenue.

Other Stories in a Snapshot

Tea export earnings: Kenya's tea industry achieved record export earnings of Ksh180.57 billion in 2023, marking a significant rise from previous years. Domestic sales added Ksh16.4 billion, totaling Ksh196.97 billion in marketed value. The Tea Board of Kenya reported a 16% rise in total tea export volume, reaching 522.92 million kilograms, promising further growth prospects for the industry.

Unsold Tea Stocks: In 2023, the Mombasa Tea Auction faced a challenge with 40% of tea stocks, around 236.9 million kilograms, remaining unsold due to high reserve prices and poor quality. The absorption rate dropped to 60% from 76% in 2022, affecting mainly Rift Valley factories. Prices also declined, with the average auction price down to $2.24 (Ksh319) per kilogram. 

Coffee Trade Hits Ksh1.3 Billion: Coffee trade at the weekly auction soared, reaching a record high of $9 million (Ksh1.3 billion), indicating a strong performance buoyed by government-led reforms in their second year. Nairobi Coffee Exchange data revealed a 35% increase in traded volumes to 30,272 bags compared to the previous week, with a 19% surge in average price to $290 (Ksh42,412) per 50kg bag. 

Kenya’s High Bank Default Rates: Fitch Ratings and Moody's have maintained a 'B' rating with a negative outlook for Kenya's banking sector due to high levels of Non-Performing Loans (NPLs), largely attributed to delayed government payments to contractors. NPLs increased by 170 basis points, reaching 15% by the third quarter of 2023, impacting sectors like manufacturing and construction. Moody's also cited challenges such as rising interest rates, increased taxes, and foreign currency shortages.

Private Household Loans Drop: Outstanding loans to private households in Kenya's banking sector dropped by Ksh13.7 billion in December 2023, a rare downturn attributed to high interest rates following Central Bank of Kenya (CBK) policy rate hikes. Commercial banks, saccos, and microfinance banks saw a 1.14% decline in loans to households after a consistent rise over 14 months. 

Cash Outside Banks Hit an All-Time High: In December 2023, cash outside of banks in Kenya reached an all-time high of Ksh282.1 billion, coinciding with state corporations reducing arrears to suppliers and contractors by Ksh29.7 billion to Ksh91.5 billion. This release of funds stimulated economic activity, as payments cascaded through the economy, potentially fueling increased spending during the holiday season.

Debt to Cross Ksh13 Trillion By 2027: The Treasury reports Kenya's public debt is expected to exceed Ksh13 trillion by June 2027, driven by rising spending and falling revenue. Public debt reached Ksh10.27 trillion by June 2023, with breaches observed in key debt sustainability indicators. Despite efforts to manage debt, including a recent Eurobond issuance, risks of distress persist due to high debt levels. Revenue collection challenges exacerbate the situation, with the Kenya Revenue Authority missing targets consistently.

Forex Reserves Drop Below $7bn: Kenya's foreign exchange reserves fell below $7 billion (Ksh 999.25 billion) for the first time in five weeks, declining by $259 million (Ksh36.97 billion) to $6.96 billion (Ksh 993.54 billion), equivalent to 3.7 months of import cover. This reversal follows a recent upward trend fueled by concessional foreign loans, with the reserves hitting a five-month high on February 22.

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