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New tax to hit developers of Sh5m houses

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The cost of owning a home for middle income earners is set to rise even further if Parliament passes a law imposing a 0.5 per cent levy on the project value.

Developers whose projects exceed Sh5 million will pay a construction levy of 0.5 per cent of the value of the contract before they can start work if the House approves the Bill. This translates to Sh25,000 more for a project worth Sh5 million.

The new rules tabled in Parliament last week empower the National Construction Authority (NCA) to suspend, cancel or revoke the registration of a contractor who starts work on a project for which the owner has not paid the building fee.

“Any owner who fails to pay the construction levy in respect of any construction contract within the stated period (14 days of receipt of notification), commits an offence and shall be liable on conviction to a fine not exceeding Sh1 million or to imprisonment for a term not exceeding six months or both,” says the National Construction Authority Regulations, 2013.

The National Environment Management Authority (Nema) has also issued a gazette notice dated September 17 that imposes a minimum charge of Sh10,000 or 0.1 per cent of project cost for environment impact assessments.

Mining secretary Najib Balala also set September 6 as the effective date for collection of a two per cent royalty on construction materials— increasing the cost of quarry stones, concrete blocks, hardcore, ballast and sand.

Only local authority cess was previously charged on the materials.

In addition to defaulting developers being fined or imprisoned, the NCA will also seek to recover from them as a civil debt money due after a period of three months.

The regulations, which were referred to the National Assembly Transport and Communications committee by Speaker Justin Muturi for scrutiny before adoption by the House seeks to fully operationalise the National Construction Authority Act, 2011.

The NCA will also have the power to consider the final value of the completed work and assess the amount of levy afresh, meaning that owners who understate the value of a contract will be subjected to more charges.

But those who pay in excess of the original levy will be refunded the corrected final contract amount.

“Notwithstanding any other provision of these regulations, the authority may consider the final value of the completed work and assess the amount of levy afresh. It may thereafter, depending on the result of the assessment, request the owner to add on the amount originally paid by the owner or refund any amount found to be in excess of the corrected final contract amount,” the proposed regulations state.

The rules place responsibility on the person who awards a contract exceeding Sh5 million to notify and submit to the authority the details of the job.

“The authority shall notify the owner of the amount of levy to be paid in respect of the contract within 14 days of receipt of the notification and the levy shall be paid before the commencement of the work”.

The contractor has to ensure that the owner has paid the full building levy to the authority where more than one contractor are employed.

But the regulations shield from additional charges sub-contracted works which constitute part of the main contract for which a levy has already been imposed.

Local contractors

The rules sets out elaborate procedures for registration of contractors in the country as well as foreign ones and outline stringent requirements that include demonstration of their capacity to deliver.

Local contractors must submit to the National Construction Authority Board, among other things, certified copies of shareholders’ certificates of the company, a copy of trust deed in the case of a trust and a complete financial statements of the person or firm for the three years immediately preceding the application or proof of a bank account in the name of the construction company in order to be registered.

-Dusiness Daily

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