The construction industry in Kenya has seen its fair share of regulatory changes, with the construction levy being a particularly contentious issue. This levy, once a fixture for developers, has been a subject of debate, repeal, and attempted reintroduction.
Understanding its history and the National Construction Authority’s (NCA) recent push to bring it back is crucial for anyone involved in the sector.
What is the Construction Levy
The construction levy was a fee imposed on construction projects, worth more than Kshs 5 million. The fee was capped at 0.5% of the total cost of a project’s construction budget. For instance, if a developer was building a commercial or residential building worth Kshs 10 million they would pay Kshs 50,000 to the NCA as construction levy.
This fee was designed to fund the operations and regulatory activities of the National Construction Authority (NCA). It was initially introduced under Section 31 of the National Construction Authority Act, 2014. This section empowered the NCA to collect levies which formed a significant part of the regulator’s revuenue sources.
Essentially, the levy played a role in enabling the NCA to:
- Maintain quality standards in construction.
- Register and accredit contractors.
- Conduct inspections and enforce regulations.
- Promote research, training and capacity building.
When was the Construction Levy Scrapped
The construction Levy, faced significant opposition from industry stakeholders who argued that it increased the cost of construction and hindered development.
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These concerns led the government to officially scrap the levy through Legal Notice No. 24 of 2017. This legal notice effectively repealed the provisions in the NCA Act that allowed for collection of the levy.
Additionally the legal notice also scrapped levies collected by other regulatory authorities such as the National Environment Management Authority (NEMA). However NEMA reintroduced its construction levies in June, 2022.
The National Environment Management Authority (NEMA) construction levy is 0.1% of the total cost of construction or Shs 10,000 for projects worth less than Kshs 10 million.
Why was the Construction Levy Scrapped
The primary concern was that the levy increased the cost of building in Kenya, thus stalling investments in the construction industry. For big developers, the burden imposed by the levy was significant enough to affect profit margins making projects less viable.
0.5%
Developers with projects worth more than 5 million paid a construction levy at the rate of 0.5% of the total project budget to the National Construction Authority.
For instance, a developer with a project worth Kshs one billlion would be required to pay half a million. This additional cost would either be transferred to buyers or the developers would bear with it and sacrifice profits.
The administrative burden of compliance, collection and remittance of the levy affected project timelines further complicating investments. Considering that construction levies were paid to different regulatory agencies, navigating red tape in these agencies ate into project timelines,
Calls for Reintroduction of the Construction Levy
Despite its repeal in 2017, the NCA has made several attempts to reintroduce the construction levy. The authority maintains that the levy is essential for it to effectively carry out its regulatory functions and ensure quality in the construction sector.
In 2022, the regulatory body called for reintroduction of the levy, arguing that the fees accounted for more than 70% of its revenues as reported by the Business Daily. In 2024, the National treasury slashed the entire Kshs 1.3 billion budget allocated to the NCA, further plunging the regulator into a revenue crisis.
Most recently, on February 20th, 2025, during a meeting with the parliamentary committee on Housing, the NCA reiterated its plea for the reintroduction of the levy. Without this source of funding, the NCA argues it remains over-reliant of the exchequer.
The ongoing debate highlights the delicate balance between funding regulatory oversight and minimizing the financial burden on the construction industry. As discussions continue, stakeholders will be closely watching to see whether the construction levy makes a comeback.
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