Unjust Taxation and Kenya's National Housing Development Fund
The primary problem with the housing levy is the problem of unjust taxation, cultivated by the structure of a modern State.
(reading time: 22 minutes)
The Objectionable National Housing Development Fund
2018 saw Section 6(1) of the Housing Act of 1967 introduce the National Housing Development Fund (NHDF). The National Housing Corporation would manage the fund. As part of the Affordable Housing Program of the government at the time, its objective would be to raise funds from various sources to provide affordable housing to Kenyans.
Five years later, in May 2023, the Cabinet tabled a proposal in Parliament to make contributions to the fund mandatory. Under this proposal, the 3.2 million wage employees1 in both the public and private sectors would be required to remit a compulsory housing levy of 3% of their gross income (this income averages KES 72,130 per person),2 with employees matching the amount, to a maximum total of KES 5,000 per month for at least seven years. This contribution was later reduced to 1.5% of the employee’s gross income, with a further amount matched by the employer, and the same maximum limit retained. Of course, employees may make additional voluntary contributions. The Cabinet Secretary for Housing and Finance would then make regulations regarding the qualifications of eligible candidates for affordable housing under the NHDF, who would need to have accumulated at least 2.5% of the value of the home that they intend to purchase, though this may change in the regulations. (For example, in Ngara and Pangani, the average cost of a house is KES 25,000,000. 2.5% of that would be KES 625,000, or a total contribution of KES 7,441 per month for 7 years.) The NHDF also intended to obtain short-term capital from local banks, development finance institutions, and the issuance of mortgage-backed securities in the local capital markets. However, it is unclear whether this is still the case since the fund has been changed to a tax.
The recent uproar sparked by the housing fund – now a housing levy – is by no means novel. In 2018, the Executive attempted to institute the fund through executive regulations. Less than three months later, the Central Organization of Trade Unions (COTU), Consumers Federation of Kenya (COFEK), and the Federation of Kenya Employers (FKE) had successfully persuaded the Employment and Labor Relations Court to temporarily suspend the regulation, citing improper consultation of the policy by the government. In March 2020, the Ministry of Housing set up new regulations, including a voluntary monthly contribution by employers and employees of KES 200 to the NHDF.3 Presumably, the NHDF was unsuccessful. Heated debates over the housing fund have seen the government amend the proposal to a housing levy, which has not helped matters much. Now, instead of going into a fund and accruing interest, employers’ and employees’ contributions will be a tax. As with other levies, including contributions to the National Hospital Insurance Fund (NHIF) and the National Social Security Fund (NSSF), the money contributed to the NHDF will likely be unrecoverable even if the proposed beneficiaries do not receive the affordable housing promised.
Few people, if any, doubt that housing is a problem worth resolving. Apart from the obvious benefit of shelter, homeownership comes with land tenure security.4 Title to one’s home gives people the personal security needed to take risks, capitalize on what they own, use it as collateral for loans or to make improvements with long-term benefits, and direct their time and energies not to procuring rent, but to other productive pursuits. The Center for Affordable Housing Finance Africa (CAHF) estimates that Kenya faces a housing deficit of 80%. While the demand for housing is estimated at 250,000 units per year, only 50,000 new units are delivered annually. The National Housing Corporation estimates that Kenya faces a housing deficit of 2 million units and counting. Only 2% of the formally constructed houses target lower-income families.5 Moreover, the CAHF estimates that the homeownership rate in urban areas is 22%, compared to the national homeownership percentage of 61.3%. 78% of households in urban areas, then, are rented - a significant fact when over 84% of the total employed population work in the informal sector and earn an average of KES 14,000 per month.6 Indeed, the ongoing influx of people onto Kenya’s incredibly small urban land area (less than 0.6% of the total land area as of 2021, according to the World Bank), means that the cost of land and housing (mostly rented) in the ever-popular urban areas will increase steadily over the coming years, to the further detriment of lower-income families.
The opposition to the housing levy arises largely from suspicion of the government’s motives. Given the history of mismanagement of other similar funds – the NHIF is a case in point – what guarantees are there that it will not be developers and landlords who benefit rather than the intended beneficiaries? Or, at a time when the government is desperate to increase its revenue and reduce the national debt burden, might not some of the money collected also end up in general government coffers, let alone private pockets, rather than in the NHDF? The rising cost of living only makes these questions more pressing, as does the fact that the brunt of the housing levy would be borne by those least able to pay it.
Suspicion of the national government has led some to suggest that the move is a usurpation of the powers of the county governments to provide sanitation and housing.7 The suggestion is not without cause. After all, much of the intended benefit of devolution was to increase the representation of ethnicities in the government to ensure a more equitable distribution of wealth and development initiatives throughout the country.8 Yet, under the Constitution, the county governments have severely limited power to acquire resources. Counties can only raise a minute proportion of what is needed to discharge their responsibilities. Moreover, under Article 212 of the Constitution, counties cannot borrow unless the national government guarantees the loan, which it might be reluctant to do, both because of its debt burden and because it may thus lose precious control over the counties. This leaves the counties dependent on contributions from the nationally collected revenue. Unfortunately, the national government often deducts too large a sum from the national revenue before distribution to the county governments for the counties to receive significant sums.9 Despite the merits of this objection, then, the counties are unlikely to be able to independently “provide sanitation and housing”.
However, this objection points us toward a deeper issue: the problem of income and revenue. Many have objected vociferously to the housing levy on the ground that Kenyans cannot bear yet another tax in the context of the burgeoning cost of living and the failure of their wages to match it. And yet, the country is mired in debt. The current government has set its revenue collection targets at KES 2.96 trillion for the current financial year, several times greater than that set by the previous government. Recourse to external debt financing is undesirable in the present political climate, to say the least. Unlike debt, taxes have no strings attached – at least, not directly. But, as has so often happened in the course of history, the uproar of the people hints at an injustice where I would like to suggest the real problem lies. Prudence demands that we ask, “What should be taxed?”
The Structural Origins of Unjust Taxation
The fear that the government will mismanage the NHDF is more significant and better founded, yet it still falls short of the essence of the matter in question. Taxation serves as an appropriate entry point.
Taxation is a compulsory contribution to state revenue imposed by a government. One of the chief problems with contemporary taxation is the word “state” in that definition. From this point on, I will write it as “State”, beginning with a capital letter, for clarity.
When we think about our relationship with a State, we do not tend to see ourselves as living in a modern State. Instead, we tend to see ourselves as living in societies and within or under a State. The distinction between State and society seems self-evident to many of us, at least in its general outlines. A society is a group of people living under the political rule of a State. A State is a centralized, administrative, political organization that holds a monopoly on legitimate violence within a definite territorial boundary.10 The State would include the branches of government and the numerous public offices that serve administrative functions, as well as the police and military. In this definition of a State, the emphasized words are critical. The notion of political rule that the idea of a State implies is one to which the monopoly on coercive force is central as a characteristic and, consequently, as an aim. Quite simply, a powerless State is not a State. To exist, a State must have a monopoly on coercive force, the capacity to enforce commands and prohibitions. The State exists to restrict individuals and societies from visiting violence upon each other. Such violence could only occur if the aims of these individuals and societies contradicted each other – but a harmony of purposes is not the State’s concern.
From this, three pertinent consequences arise for how we tend to understand ourselves as a political community.
1. The subversion of goodness
The State-society distinction outlined above means that, as a subject of the State, no person or society can have a purpose that is truly good, regardless of that person or society’s subjective intentions.11 This is not to say that every person living within the territory under the jurisdiction of a State is malicious. The point here turns rather on the State’s subversion, sometimes unwittingly committed, of what goodness is.
As we have already said, the purpose of the State is restrictive. The State exists to enable individuals and societies to pursue their aims to the greatest extent possible. We think of individuals as inhabiting “spheres of immunity”, islands of freedom that no other may infringe upon. As the maxim goes, “My freedom ends where yours begins,” or even more briefly, “You do you. Cheza kama wewe.” Aside from this rider, the State so understood has no competence to say what people should aim for as subjects of the State. The State has no competence to define the common good. Therefore, no one may validly proclaim his vision of the good to be universally applicable to everyone else. To take a ludicrous example, he is certainly free to say that a meal without ugali is immoral for everyone regardless of their beliefs (or, to take a weightier example, that “Christ is the answer” for everyone). Nonetheless, purely because of its structure and regardless of the intentions of those who constitute the State, the State reduces this claim to a mere opinion, to one of many possible exercises of choice that its subjects may make. Whatever a person affirms privately, the State cannot affirm publicly in its laws as universally valid. Private belief cannot receive public endorsement. Otherwise, it infringes on the freedoms of others. Of course, if the vast majority of people share the same private belief, there will certainly be many visible signs of it. Think, for example, of street preachers, the proliferation of churches, words from Sacred Scripture on the windows of matatus, etc. However, in a modern State, these signs are signs of a private belief valid not because it is true, but because it is what people under the jurisdiction of a State have decided to do with their freedom. Article 8 of the Constitution is commonly interpreted as a brief statement of this position: “There shall be no State religion.”
Thus, goodness is separated from truth and ceases to be goodness. If something is true, then it must be true for everyone – otherwise, it simply is not true. If something is truly good, then its goodness must be true for everyone. Otherwise, it is not good. Instead, it is just the imposition by one person of his choice on his fellow citizens, with or without their consent. Every action is fundamentally selfish, fundamentally self-interested – even selfless actions. To the extent that one accepts the jurisdiction of a modern State, he finds himself in this woeful situation.
2. The public-private distinction
This brings us to the second consequence for our self-understanding as a political community: the false distinction between the public and the private.12 In a modern State, it is the State that has responsibility for what pertains to everyone, for what is “public”. Individuals and societies occupy the so-called “private sphere”. Because the private is, at its foundation, nothing but a mere exercise of choice that one must keep entirely to oneself or else impose on others (with or without their consent), the private is essentially egotistic while the public, which pertains to the State, is understood to be social and beneficent.
Unfortunately, the State is composed of individual persons: members of Parliament and the Executive, judicial officers, members of the civil service, the police service, and the military. If they accept the jurisdiction of the State, their actions are fundamentally egotistic. We must reiterate that this is the case regardless of their intentions to the extent that they accept the jurisdiction of a modern State. Moreover, the split between the public and the private strongly encourages egotism in the private sphere, in the actions of individuals. Such egotism is viewed not only as morally permissible, but as inevitable, and even the sensible way to behave.
3. The split between interest and service
Here, we see the third consequence for our self-understanding as a political community: the false distinction between interest and service.13 In a modern State, it seems utopic to say that there can be an interest in serving, let alone that service is what is most in our interest because it enriches us most.
In a modern State, desire is seen as selfish, and altruism is seen as empty of desire. Many people, for example, speak of performing selfless acts because they “feel good”. Just as many question whether that makes selfless actions cease to be selfless. If I enjoy giving money to a stranger, am I doing it only for the sake of that stranger? Isn’t my action at least a bit selfish? The fact that we ask such a question signals our confusion. To truly desire anything at all is to see it as being truly good, truly worthwhile, as having true worth.14 To affirm this worth in our actions, to respond to this worth, takes the form of service. It is in service, so understood, that we attain what we desire; it is in service that we experience joy.
But in a modern State, there is a tendency to shun service as cold, joyless, and contrary to our desires (although this is far from the truth!) Since service is thought to pertain to the public sphere, and since the public sphere comprises individuals, it is no wonder that the individuals who form the State appropriate institutions and resources for selfish aims. Of course, these resources include the compulsory contributions to State revenue that we call taxes. Not only are the contributions likely to be diverted to the self-aggrandizement of a few, but the contributions demanded are likely to be unjust and burdensome. This is precisely what we observe beneath the uproar over the raft of tax hikes and introductions, including the housing levy.15
The Taxes We Ought (Not) to Pay
So far, we have highlighted the primary problem with the housing levy: the problem of unjust taxation. Unfortunately, this unjust taxation is cultivated by the characteristics of a modern State that undermines good intentions and turns them into selfish ones, encourages overt egotism in private actions (including the actions of the individuals who comprise the modern State), and portrays non-egotistic actions as onerous constraints on individual freedom. All of this holds to the extent that we experience ourselves as living under the rule of a modern State understood as such – a view that seems prevalent in Kenya’s university education generally. But why exactly are these taxes unjust?
According to the classical definition, justice aims to give each person what is his due.16 A just tax, then, will demand from the citizen what the political authority deserves from him – no more, no less. It pertains to the authority to order the community in such a way as to achieve, to the greatest extent possible, that community’s perfection.17 The authority does this by promulgating and enforcing laws, and by establishing the material, educational, and other cultural conditions that are conducive to the community’s perfection. The members of this community, that is, the citizens, have a corresponding obligation to obey the just laws enacted by the political authority and to contribute what is necessary to enable the political authority to perform its functions. Since this article focuses on the material contributions of citizens to the common weal, we must examine where those material contributions come from to pinpoint what the citizens are obliged to contribute. In brief, the question we are now considering is: how is wealth produced?
Ultimately, it is land and labor that produce wealth.18
Land, considered as such, cannot have duties since it is an inanimate object. Therefore, naturally occurring resources (e.g., trees, water, etc.) should be freely available for use or consumption. As Adam Smith recognized, the institution of private property or, in more expressive terms, private sovereignty over property19 puts a price tag on these resources – and unjustly so.20
Labor is an act of the human person that transforms the world around him. Labor is responsible for all human-generated wealth, and the fruits of his labor belong to the worker. Yet, since every person is sustained in existence by the entire political community, he owes a portion of the fruits of his labor to them, for they make his labor possible. Take, for instance, the journey of a single loaf of bread to any person’s breakfast table. Wheat is planted, cultivated, and harvested in one part of the country, transported elsewhere, ground into flour and turned into bread, packaged and sent to wholesale and retail shops operated by legions of people, and so on.
Finally, the labor of people in a location raises the value of land in that location. This is due to various factors: proximity to wealth (people do not have to travel as far as they used to when they want to purchase goods, for instance), faster exchange of information or resources (due to improved telecommunication infrastructure, for example), etc. Therefore, any person who owns a parcel of land owes a portion of the value of that land to those around him and, ultimately, to the political community. We can conclude, then, that, in terms of taxation, a citizen owes the community two things.
First, he owes the community a portion of the fruits of his labor – he may pay an income tax, for example. Second, he owes the community a portion of the value of his land, specifically that portion due not to his labor, but rather to the economic activities of the community around that piece of land.21 The purpose of this contribution is to enable the political authority to fulfill its duties. The authority should demand no further tribute from the citizen.
However, Kenyan citizens, especially the poor, are beset by an incredibly unjust and onerous – and increasing – tax burden. To give a sense of how heavy the burden is, in 2022, 52% of Kenya’s tax revenues came from consumption taxes.22 Apart from the fact that consumption taxes do not correspond to the principles of just taxation as outlined above, consumption taxes disproportionately affect persons who earn a lower income. These people spend a larger portion of their income on consumption, as opposed to people earning a higher income, who have a greater proportion of income to save or invest. After all, a person can only eat so much. The average monthly wage of people working in the formal economy is KES 72,130. That isn’t much when almost half of all Kenyan households have at least two children to support.23 When we add to this the fact that about 84% of working Kenyans work in the informal economy and earn, on average, KES 4,000 to 8,000 per month,24 the situation suddenly becomes dire. Granted, the housing levy may not affect many informal enterprises, over 85% of which were not tax compliant as of 2016.25 Yet even in 2016, a significant proportion of informal enterprises were slowly shifting towards formality, including compliance with tax regulations.
The housing levy only adds to this burden, raiding the wages of the vast majority beyond the bounds of the already-hefty income tax. Yes, it is unclear whether the funds will be used for affordable housing or diverted to general government coffers – let alone party or private pockets. But focusing on this point only obscures a more fundamental contention. As wage laborers languish, enormous tracts of land remain idle in the hands of speculating landowners, and many landowners reap huge, unjust benefits from the increase in the value of their land caused by the economic activities of people surrounding it.
Reposted with permission from Nyiha, Mukoma & Company Advocates.
Kenya National Bureau of Statistics (2023). Economic Survey 2023, p. 57. Link here.
The informal economy contains over 84% of Kenya’s working population. Most informal enterprises are not registered. Their workers, therefore, are not registered as employees and probably do not remit personal income tax. See Federation of Kenya Employers and International Labor Organization (2021, March). The Informal Economy in Kenya. International Labor Organization. Link here.
Regulation 8, The National Housing Development Fund Regulations, 2020.
See Peterson, J. (Host) and Lomborg, B. (2023, April 3). 12 Ways the Planet Could Truly be Saved (No. 345) [Audio podcast episode]. In The Jordan B Peterson Podcast. YouTube. Link here.
Muriuki, V.W. and Munyao, S.M. (2022, 7 December). Africa Housing Finance Yearbook 2022: Kenya. Center for Affordable Housing Finance Africa. Link here.
Mungai, K. (2023, 31 May). “10 reasons why Housing Fund is unconstitutional”, The Standard. Link here.
Ghai, Y.P. (2015). “Comparative Theory and Kenya’s Devolution”. In Bosire, C.M. and Gikonyo, W. (eds.) (2015). Animating Devolution in Kenya: The Role of the Judiciary. Commentary and Analysis on Kenya’s Emerging Devolution Jurisprudence under the new Constitution. International Development Law Organization, Judiciary Training Institute, and Katiba Institute: Nairobi, at p.23.
See Ghai, Y.P. (2015). “Comparative Theory and Kenya’s Devolution”. In Bosire, C.M. and Gikonyo, W. (eds.) (2015). Animating Devolution in Kenya: The Role of the Judiciary. Commentary and Analysis on Kenya’s Emerging Devolution Jurisprudence under the new Constitution. International Development Law Organization, Judiciary Training Institute, and Katiba Institute: Nairobi, at p.28.
The author owes the notion of how we view ourselves in a modern State to Mark Shiffman’s analysis of the lived experience of people in different forms of political community. See Shiffman, M. (2022, November 4-5). Phenomenology of the Modern State [presentation]. The Common Good and the Political Order: On the Church’s Responsibility for the World (Conference), Washington, D.C.
The argument of this section comes largely from D.C. Schindler: Schindler, D.C. (2019). The Politics of the Real: The Church Between Liberalism and Integralism. New Polity Press: Steubenville, Ohio.
The argument of this section draws much inspiration from Rafael Alvira Domiguez: Dominguez, R. A. (2 June 1998). “Sobre el origen estructural de la corrupción” [“On the structural origin of corruption”]. Foro de Empresarios de Valladolid [Valladolid Business Forum], pp. 51-57.
See Schindler, D.C. (2006). “The Redemption of Eros: Philosophical Reflections on Benedict XVI’s First Encyclical”. 33 Communio 3, pp. 375-399; and Dominguez, R. A. (2 June 1998). “Sobre el origen estructural de la corrupción” [“On the structural origin of corruption”]. Foro de Empresarios de Valladolid [Valladolid Business Forum], pp. 51-57.
An extended argument for this claim can be found in Nyiha, A. (2021, June 22). “Hope and the Meaning of Life in Sauti Sol – Part 2”. The AfroDiscourse (blog). Link here.
James McFie argues that the current high taxes (not to mention innumerable permits and requests for bribes) are seriously detrimental to Kenya’s manufacturing sector and employment rate. Referring to politicians and higher-income earners, he says succinctly: “We are living beyond our means as a country.” See Latiff, E. (2023, July 19). The problem with Kenya’s economy is stealing. (Interview with Dr. James McFie.) Spice FM. Link here.
See, for example, Aquinas, T. (1947 ed., Benzinger Bros.). Summa Theologica. (Fathers of the English Dominican Province, trans.). II-II, q. 58, a. 1. Link here. Original work published 1265-1274.
This necessarily includes the perfection of the persons who make up the community. A community is not an aggregate of individuals with no relation to one another, like the stones in a heap of gravel. Rather, a community is comprised of persons who are profoundly and intrinsically united to each other almost like friends are. Each belongs to the other; each is responsible for the other; each is deeply part of the other. See Wojtyła, K. (1979). “The Person: Subject and Community”, 33 The Review of Metaphysics 2, pp. 273-308.
Most of the divisions of capital are, in fact, aspects of land (natural capital) or labor (human capital, instructional capital, and social capital), or a combination of the two (public capital). Labor is an act of the whole human person and, therefore, all his capacities and relations are involved in his work. As for land, it necessarily includes all the resources that are naturally present in any location. These resources only become secondary materials (including technological equipment) through the action of labor.
It is crucial to note that financial capital (in the final analysis, money) does not produce wealth. At any point in time, it serves one of two functions. Either it serves as a means of exchange (facilitating the distribution of the products of land and labor to other people for their value-generating use or consumption) or as a store of value. The apparent increase in the value of money held as a store of value is not a true production of wealth. At the risk of oversimplification, we may say that the valuation of money (in the form of securities, for instance) in the market represents how much money people are willing to pay to obtain higher sums of money in the future. Increases in this value are increases in the amount of money people are willing to pay. But the value “stored” in the money involved in these transactions is nothing other than the (perceived) value of land and labor and their products. A simple demonstration of this principle: the more goods a country produces, the cheaper they are to buy in that country. Therefore, the “increase” of wealth in these markets comes, in one way or another, from the pockets of those who work to produce that wealth.
Here, we refer above all to the ius abutendi (literally translated as the “right to abuse”), the so-called “right” to make use of one’s property for selfish purposes, even to the point of wasting or destroying it.
See Borruso, S. (2005, August 31). “Leggi economiche, etica e paradossi: C’è via d’uscita?” [Economic laws, ethics, and paradoxes: Is there a way out?] Signioraggio Network. Link here.
This concept is not new. The contemporary term “land value capture” at least approximates the concept. See also an article recommending land value taxation as an alternative to the housing levy: Manji, A. and Ghai, J. C. (2023, May 24). “Raiding wages – Kenya’s proposed housing levy”, Review of African Political Economy. Link here.
Organization for Economic Co-operation and Development (OECD) (2022). Revenue Statistics in Africa: Key findings for Kenya. Link here.
Kenya National Bureau of Statistics (2022, April). Kenya Population and Housing Census: Analytical Report on Household and Family Dynamics (Volume XI). Link here.