Private developers reject removal of tax incentives

The Treasury has proposed in the Finance Bill to amend the Third Schedule to Income Tax Act (Cap 470) in Head B, paragraph two, by deleting subparagraph (i).

"This proposal seeks to remove the 15 percent tax rebate available to a company that has constructed at least one hundred residential units annually, subject to approval by the Cabinet Secretary responsible for housing," Rose Kananu, the KPDA managing director, said.

"We recommend that this proposal is dropped and that the current provision of the Income Tax Act (Cap 470) is retained."

Appearing before the National Assembly's Finance and National Planning committee that is receiving stakeholders views on the Finance Bill, 2025, Ms Kananu said the solution to the housing problem is not to repeal the tax incentive, but to streamline its administration by increasing access to the tax incentive,

"Reduce the threshold from at least 100 units to at least 50 units to encourage uptake of this tax incentive."

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Ms Kananu said the purpose of the tax rebate is to make large-scale residential housing financially viable to attract both local and foreign investment by the private sector due to

the government’s budget deficit in its developmental budget.

She said the government, through its  Bottom Up Economic Agenda (Beta), aims to increase the supply of new housing to 250,000 units annually and raise the percentage of affordable housing from
two percent to 50 percent.

"Repealing the tax rebate now would be pre-mature as it is yet to materialise its purpose as a fiscal policy tax incentive," she said.

"Tax incentives like the 15 percent corporate tax rebate stimulate demand across this value chain. Removing the tax rebate could discourage investment, increase property prices, and slow down housing

development. The government should retain the incentive or introduce a scaled tax relief based on project sizes to be able to accommodate all levels of developers."

Strategic partners 

She told the committee chaired by Molo MP Kuria Kimani that the tax rebate recognises real estate developers as strategic partners in national development.

Ms Kananu said by removing the tax incentive, the government undermines its own policy goal and developers will have less capital to scale up housing production, while new entrants will be discouraged by reduced returns on investment.

"Retaining the tax rebate ensures this balance is preserved," she said.

"Kenya’s housing deficit stands at over 2 million units, with an annual shortfall of nearly 200,000 units. Meanwhile, over 60 percent of Nairobi residents live in informal settlements, where access to clean water, sanitation, and decent shelter is limited."

Ms Kanunu said the tax rebate is not merely a fiscal matter but a constitutional tool to operationalise the right to adequate housing under Article 43.

"Its removal disproportionately affects the low- and middle-income segments of the population. Scaling down affordable housing development due to higher taxes would exacerbate urban poverty, deepen inequality, and derail efforts to formalize the housing market," she said.

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"Repealing the tax rebate now would be pre-mature as it is yet to materialize its purpose as a fiscal policy tax incentive."

Ms Kanunu also faulted the Treasury's proposal to scrap tax incentive for goods imported or purchased locally for direct and exclusive use in the construction of houses

under an affordable housing scheme approved by the cabinet Secretary on the recommendation of the Cabinet secretary responsible for matters relating to housing.

She told lawmakers to strike out the proposal out and that the current provision of the Value Added Tax Act (Cap 476) be retained. "We propose that the VAT exemption framework be aligned with the corporate tax incentive model. Specifically, we recommend that the VAT exemption on housing inputs be retained," Msd Kananu said.

"The approval process be decentralised by removing the National Treasury as the approving authority. The Kenya Revenue Authority (KRA) or the State Department for Housing be designated to

administer and verify exemption claims based on clearly defined eligibility criteria."

The KPDA also wants MPs to reject the Treasury's proposal to delete paragraph 1A and  1B of the Income Tax Act (ITA)  which incentivise investments made outside Nairobi City County

and Mombasa County as well as investments made in a Special Economic Zone (SEZ).

Ms Kananu said the current law provides incentives that are designed to foster regional development, alleviate urban congestion, and foster more equitable economic distribution.

"We propose that this deletion be removed from the Bill. Paragraph 62 should be retained in the First Schedule of the VAT

Act that provides for VAT exemption," Ms Kananu said.

Ms Kananu also asked lawmakers to reject the proposed deletion of paragraph 63 of the First Schedule which provides for exemption of taxable goods for the direct

and exclusive use in the construction and equipping of specialised hospitals with a minimum bed capacity of fifty, approved by the Cabinet Secretary upon
recommendation by the Cabinet Secretary responsible for health who may issue guidelines for determining eligibility for the exemption.

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