Landlords working for KRA pose challenge

Some commentators have been claiming that taxing landlords is a new measure announced by the minister of Finance Njeru Githae in Parliament during budget day.

However, the Income Tax Act has always captured rental income as a tax requirement.

It’s only that there were no elaborate measures to collect the due taxes from landlords in the past.

Many have also written that landlords will simply pass on the tax rates to their tenants.

That is easier said than done because it presupposes that all landlords are not tax-compliant.

There are various landlords who have paid their taxes all along and will have no reason to hike rents.

Secondly, how high can one hike rents without risking mass walk-out by tenants?

For example if total rent received per month is Sh500,000 but the landlord has never paid taxes for the last 20 years (tax due is almost Sh150,000 per month ignoring allowables) then interest and penalty charged on the property could reach Sh36 million assuming full occupancy throughout.

So the tax man may scale down to a reasonable level of maybe Sh20 million. The point here is that you cannot pass on that tax amount to tenants.

Additionally those that move to court should know that they must seek justice with clean hands.

The courts usually require the full amount of assessed tax deposited with the courts before hearing can commence. But the challenge here is two- fold.

Corruption by Kenya Revenue Authority (KRA) staff and slum landlords who do not have water and electricity meters.

On the first issue, since all tenants are recruited and have declared rent amounts paid, this total amount should be registered with KRA’s data base so that if a landlord claims some houses were not occupied in certain months then he must provide proof.

On the second issue all slum landlords need to be tackled in an innovative way.There are many slum landlords collecting Sh2,500 per shack and many own over 1,000 shacks.

That is a cool Sh2.5 million per month. Another challenge is the fact that many landlords are employees of KRA. How will the commissioner general tackle this conflict of interest?