The Kenya Revenue Authority (KRA) will in the next few weeks appoint agents—including independent ones—to collect data relating to buildings and their owners to establish their rental income tax status.
KRA expects to rope in around 20,000 building owners and collect no less than Sh3 billion by the end of this fiscal year.
The amount is expected to go up in the coming years once a database is built, KRA commissioner-general John Njiraini told the Press at a briefing in his office on Tuesday.
Among those targeted to become agents for the taxman are property management companies who normally collect rent on behalf of landlords.
KRA will also recruit government ministries, departments and agencies that pay rent to act as withholding agents for rental income.
The authority could also appoint independent entities – who are not property agents or government – to collect the data.
Where the property agents collect the rental income, they will also be expected to withhold taxes on the income and submit to the KRA in an initiative hoped to finally get hold of the potentially huge revenues from the real-estate sector.
“We have had a lot of challenges with collecting rental income tax in the past few years. We found out that there were real difficulties in compliance and we want to ensure that we recruit landlords, some of who may not even be aware they should pay tax,” said Mr Njiraini.
Mr Njiraini said the authority is keen on helping taxpayers comply rather than pursue punitive and adversarial methods of collecting taxes.
He said many landlords had failed to comply due low level of education, ignorance of tax obligations, complexities of compliance and poor record keeping especially of expenses.
The KRA commissioner-general said landlords had indicated that they were willing to pay tax, but did not know where to start.
“People don’t like to struggle to pay tax. If they find the work inconveniencing, they will ask the taxman to look for them. So our role is to make it easier to comply as we recruit them into the tax net,” said Mr Njiraini.
Commissioner for domestic taxes Alice Owuor said the KRA had collected Sh8.5 billion as rental income tax over the past three years when the campaign to recruit landlords as taxpayers has been going on.
“We want to start with a Sh3 billion target for this financial year and grow from there,” said Ms Owuor.
She said the informal ways in which landlords run their businesses had been a challenge since their true financial status was hard to determine.
Landlords who did not have records would be allowed to deduct up to 40 per cent of their gross rental income as expenses with income tax calculated on the remaining 60 per cent for the 2014 and 2015.
Ms Owuor said owners of buildings have up to the end of June next year to pay tax for 2014 and 2015 rental income – including any interest or penalties – before the taxman goes out to establish their compliance status. Back taxes for 2013 and the year before will however be forgiven.
She said the amnesty not only includes interest and penalties but includes the principal amount of tax due for all the years in the past. The Finance Bill 2015/16 has however changed the payment method.
Landlords whose gross annual income from rent is less than Sh10 million will pay 12 per cent of their total proceeds from their buildings as tax with effect from next January.