Most people are rattled whenever “Kenya Revenue Authority (KRA)” and “Taxes” are mentioned in a conversation. Hotel and restaurant owners are required to part with the catering levy yet many such establishments in our neighbourhoods and towns are yet to register with the relevant body in order to start remitting payments. And in case you did not know, there is a fuel levy that is collected by the Kenya Roads Board through KRA for every litre of diesel or petrol you buy. These are but a few levies that we pay for directly and indirectly in our day-to-day life. In 2013, the proposal to double the fuel levy caused an uproar while a research conducted across a number of hotels and restaurants in 2011 indicated that more than 50% of hotels, pubs and restaurants within the Nairobi CBD had neither registered for both VAT and Catering Levy nor had they remitted the required payments. This may have improved over the last 3 years.
Construction has not been left out. The National Construction Authority (NCA) has announced that it shall be collecting the Construction Levy from property developers in Kenya. But before we delve into the mechanics and simple economics of levies, it is important for you to understand that a levy is a proportion of the value of the commodity or service. In this case, NCA has imposed a construction levy equivalent to 0.5% of the contract value for a construction project of any kind.
We have compiled a list of 5 things you must know about this Construction Levy as required by Kenya’s National Construction Authority.
Construction Levy is only applicable to projects worth over Kshs 5 Million
A construction project has a price tag – the contract value. This is basically the proposed price of the project. This price can be determined in different ways. Some projects’ values can be considered as lump sum. In other projects, the price of a project can be determined using bills of quantities or a schedule of rates. In this case, the work done shall be assessed against the values in the documents.
From the above it is advisable that as a developer you should invest in the services of professionals, especially quantity surveyors, in determining the contract value of your development. In case the value of a project is less than Ksh 5 million, say Ksh 3.5 million, then you will not be required to pay the Construction Levy to the National Construction Authority.
In the case where your project is worth Ksh 10 million, you will be required to pay 0.5% of Ksh 10 million, which is Ksh 50,000 as levy to the NCA.
Construction Levy is paid by the developer or owner of the project
Any construction project has an owner. It could be the government or a parastatal, business partnerships or individuals, institutions or private developers, NGOs or investment clubs (chamas). A project owner usually awards a project to a contractor and sub-contractors, who must be registered accordingly as required by the NCA.
Once a project owner awards the construction tender, he must ensure that it is registered [see point 3 below]. Once the project has been verified and approved, as you shall see later, the property developer or owner will be required to make payments to the NCA or its authorized agents.
Every construction project must be registered by NCA before the Construction Levy is paid
Imagine you are a chama that would like to set up a gated community development in Syokimau. You have fully engaged the professional services of competent and registered professionals and you have successfully completed the tendering process for the project. In fact, you have selected the best team of contractor and sub-contractors for the job. Before any work commences on your newly acquired parcel of land, you must register your project with the NCA.
How do I register a project? The NCA has a project registration form which enables the Authority register a construction project anywhere in Kenya. The information captured is useful in collecting the details of:
- consultants involved in the project,
- the contactors and sub-contractors engaged in the project,
- the project duration and budget
- Project approval details
- Schedules of contractor’s resources [Plant and equipment and human resource]
Therefore, your chama must notify the NCA of the project within 30 days from the date when the tender was awarded to a registered contractor. It is the responsibility of the chama as a developer and owner of the project to register the project before it commences.
Within 30 days after NCA has received the application and payment for project registration, it will issue your chama with a Compliance Certificate.
Construction cannot start without a Compliance Certificate from NCA
Everyone needs to care about this Compliance Certificate. The works cannot start without this certificate. A contractor can be de-registered if s/he starts working without this certificate. The compliance certificate is proof that the project has both been registered and the associated Construction Levy fully paid for.
Why every Contractor needs to care about this regulation
Even though it is the developer who is required by the NCA regulations to pay for the NCA Construction Levy, it is the responsibility of the contractor to ensure that this responsibility has been duly undertaken. In fact, the main contractor is required by the regulations to ensure that the developer has fully paid the amount required for the levy. However, if the main works consist of sub-contracts, the levy for such works shall not be paid to the NCA.
The regulations make it clear that a contractor who fails to ensure the full payment of the levy by the project owner or developer risks having their registration suspended, cancelled or revoked. Therefore, as a contractor, you must ensure that the developer has a valid and authorized Compliance Certificate from the NCA before you start any construction works for the project you have been awarded.