World Bank Bombshell: “Stop Milking Kenya’s Poor” – Demands Ruto Drops Painful Housing and Health Levies on Low Earners
The World Bank is asking the Kenyan government to stop charging low-income earners the housing levy and Social Health Insurance Fund (SHIF) contributions.
The housing levy, introduced by President William Ruto in June 2023, takes 1.5% of a worker’s monthly salary and matches it with an equal amount from employers. It was created to fund affordable housing and create jobs for young people. It’s also part of a broader plan to increase national tax revenue.
However, the World Bank says the levy is unpopular and makes hiring more expensive. This, they argue, reduces formal employment opportunities, especially for low-wage earners.
In its latest review of Kenya’s public finances, the World Bank recommends changing the income tax structure to exclude people earning less than Ksh 32,333 a month from paying the housing levy. The Bank says this change would slightly improve fairness without causing major revenue loss.
“Removing the housing levy for low-income earners—those making less than half the average salary—would only reduce revenue by 0.08% of total income and social security taxes,” the report says. “This small shortfall could be covered by slightly increasing the levy by 0.05 percentage points for higher earners.”
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The World Bank also wants the government to rethink SHIF, the national health insurance scheme that replaced NHIF in October 2023. SHIF takes 2.75% of a worker’s income, with a minimum contribution of Ksh 300. Informal workers are supposed to contribute 2.75% of their total household income.
However, most people in the informal sector do not pay. As a result, SHIF is expected to collect only Ksh 67 billion per year, far below its Ksh 157 billion target.
According to the World Bank, the SHIF model discourages workers and small employers from joining the formal economy, because it increases their costs. This, the report explains, is a problem because SHIF depends on more people joining the formal sector to succeed.
The Bank suggests that the government should stop collecting SHIF contributions from low-income formal workers and instead pay their contributions through the national budget.
“Removing SHIF payments for low-wage formal employees could help increase formal employment and reduce pressure on low-income workers,” the report says. “At the same time, it would help fund health coverage for both poor and informal workers.”
World Bank Bombshell: “Stop Milking Kenya’s Poor” – Demands Ruto Drops Painful Housing and Health Levies on Low Earners
