I overheard that the government has re-introduced some levies that will directly impact building construction costs. My thinking has always been that the government should reduce construction levies to the bare minimum towards encouraging the construction of residential houses to cut down on the deficiency.
Some construction costs will definitely shoot up following the recent re-introduction of levies.
For instance, the National Environmental Authority (Nema) reinstated the Environment Impact Assessment (EIA) levies from the beginning of this month (June).
The fees will see contractors pay between Sh10,000 and Sh40 million for environmental audits, depending on the risk levels of their projects. Six years ago, President Uhuru Kenyatta scrapped the fees paid by property developers as a percentage of the value of projects.
Industry experts concurred that the removal of the EIA fees was meant to lower project costs and sharpen Kenya’s competitive edge. But Environment CS Keriako Tobiko in 2020 said the scrapping of the fees paid to Nema had an unintended negative impact on the agency’s activities by choking its income and burdening taxpayers.
Currently, the National Construction Authority (NCA) is working to back the return of a construction levy it previously charged developers, a move that will further increase the costs of regulatory fees for builders, if effected.
The NCA argued that the levy, which was charged at the rate of 0.5 per cent of the contract value, will boost its ability to enhance enforcement and compliance with standards. The agency has lately been on the spot over the rise of rogue contractors and fraudsters in the sector.
The regulation that provided for the imposition of the construction levy at the rate of 0.5 per cent of the contract value by the NCA came into force in July 2014 before they were scrapped.
The NCA is seeking to collect fees amounting to Sh1.7 billion from real estate developers which accrued before the scrapping of the construction levy in 2017.
The regulator will hire debt collectors to recover the amount that was applicable on all construction projects with a contract value exceeding Sh5 million. A Cabinet memo of November 2016 scrapped construction levies charged by State agencies and counties to lower project costs.
On the flip side, property developers are protesting the move by the State to reintroduce construction levies paid to Nema, arguing it will lead to higher construction costs and hurt the affordable housing drive.
The Kenya Property Developers Association (KPDA) has urged the government to rescind the decision.
The developers claim the fees would impact negatively on the ongoing State-backed development of affordable housing by making construction costly. KPDA chairman Ken Luusa says the NCA-backed levies would make it difficult for developers to deliver on the housing agenda.
– Harold Ayodo is an advocate of the High Court of Kenya.