Treasury plan to tax rent income runs into hurdles

“We have high demand for housing but the minister did not give enough incentives. We need more incentives to meet the demand,” said Mr Kowuor.

Although many of the owners of properties being managed by professionals are already paying tax, he estimated that tax was not being paid for 60 per cent of buildings in the city.

The tax evaders are mainly those who collect the rent themselves or had outsourced the work to unregistered property agents.

“Between 70 and 80 per cent of urban dwellers are tenants and so this move could have serious repercussions.

We should consider that there is a housing deficit and landlords could take advantage to raise rent,” said Mr Kowuor.

However, legal experts have argued that there is no likelihood that a policy on taxation, which has already been passed into law can be challenged in court.

“Rental income is not exempt from taxation,” said a Nairobi-based commercial lawyer who requested anonymity because of his professional engagements in the sector.

KRA estimates that landlords constitute the single largest group of businesspeople whose income is untaxed, and plans to raise Sh90 billion in the current financial year through the proposed measures.

“Rental income will be taxed at the income rate and will require landlords to simply pay tax on whatever income they earn from rental property,” Mr Githae said last week.

The tax, he said, would be paid by all landlords earning more than Sh10,000 per month from rent and graduated according to the Pay As You Earn scale.

ISK, however, said the tax bands for rent income should be broadened and tax breaks introduced to cushion investors from the long pay-back periods.