Opinion and Analysis
Why taxation of landlords is long overdue
Posted Thursday, June 21 2012 at 19:58
Following the inclusion of landlords in Finance minister Njeru Githae’s Budget speech last week, a number of people thought a new tax had been introduced. As has been explained from other quarters, no new tax was introduced, only that a spotlight was shone on a group of tax payers who, due to laxity by the tax authorities, have not been honouring their obligations. No law exempted landlords from paying income tax.
In Nairobi with its more than five million residents and the low percentage of home owners, landlords have been raking in colossal amounts of money every month. This is business income which according to the law, after charging expenses related to the income, needs to be taxed at a corporation rate of 30 per cent.
The law allows expenses to be deducted from business income to arrive at taxable income. For residential houses, a number of expenses abound, including electricity, water, security, drainage, landscaping, refuse disposal and many more.
In addition, the huge capital outlay committed to these houses by the landlords should also enjoy capital deductions as their counterparts in the industries are allowed to enjoy industrial building allowance. To the landlords, and anybody who cares, residential buildings should be considered as commercial buildings and enjoy wear and tear at 25 per cent per year for four years.
This will definitely push most landlords’ incomes to losses for a while and no tax will be then payable. In effect, tenants are likely to enjoy better services from landlords and on the other hand landlords will not have to pay huge taxes for now.
With possibility of reducing their tax burden, landlords should be persuaded well enough to take these costs from the tenants. In that instance, even if the rent went up slightly, tenants will be saved from these costs. What has been long forgotten like drainage in some of the residential areas in our towns have a chance of being revived and even the access roads stand a chance if landlords organised themselves and decide to give good value to their customers.
Most landlords also service various loans they got from banks to put up the buildings. The recent past has seen interest rates jump quite high following monetary policy interventions by the Central Bank to fight the inflation that was getting out of hand. The high interest repayments eat into landlords’ income. The interest payment on such loans is tax allowable expense which will reduce the tax payable by landlords. When everybody contributes to the taxman’s kitty as the law requires and we pray the demon of corruption is exorcised to a large extent the government will have more funds to expand our roads further, provide better healthcare services to its people.
The writer is a finance Student at USIU