KRA moves to enforce payment of rental income tax


Kenya Revenue Authority staff carry a banner around Times Tower, during the tax payers week, recently. KRA kicks off a campaign on July 13, 2012 to sensitise players in the real estate market on how it intends to start collecting taxes on rental incomes. Photo/File

The Kenya Revenue Authority (KRA) has kicked off a campaign to sensitise players in the real estate market on how it intends to start collecting taxes on rental incomes.

The campaign will start Friday morning at the taxman’s Times Tower offices in Nairobi before moving on to other parts of the country later this month.

“KRA will be running these forums so that we can bring clarity to the issue on why and how we will be taxing landlords,” said Alice Owuor, the commissioner of domestic taxes.

The campaign will be backed by links on the KRA website to pages dedicated to enquiries on rental income and reporting of tax evaders.

A notice on the tax evasion webpage reads in part: “The public is encouraged to report genuine cases of tax evasion relating to the real estate and rental income taxation.”

Among the details required from the whistle-blowers are land reference numbers and location of the property.

According to details on the website, a resident landlord will be taxed 10 per cent on the first Sh121,968 earned annually and 15 per cent on the next Sh114,912.

For all annual income above Sh466,704, the landlord will have to remit 30 per cent. 

Non-resident landlords will be required to pay a withholding tax of 30 per cent on gross rents and will not be allowed to deduct expenses. Resident landlords, however, will be allowed to offset overheads such as financing and maintenance costs.

The website says that the taxes will be paid in four instalments on the 20th day of the fourth, sixth, ninth and twelfth months with outstanding balances payable at the end of the fourth month after the accounting period.

However, landlords will be allowed to deduct expenses incurred such as financing and maintenance costs.

The sensitisation is intended to brief property developers, consultants, surveyors, architects and utility providers on how the tax will be implemented.
The taxman also plans to send its officials to various neighbourhoods in some kind of roadshow, which includes door-to-door visits.

“In the more organised estates, we will contact representatives of resident associations so that we can arrange to meet their members,” said Kennedy Onyonyi, the KRA senior deputy commissioner, who heads the marketing and communication department.

KRA the campaign was being financed internally. Finance minister Njeru Githae announces during the Budget speech in June that KRA would start levying taxes on landlords, sparking fears among tenants that rents would be increased.

A consumer watch group, as well as the Institute of Surveyors, had raised concerns on the implementation of the taxation measures.

The Consumers Federation of Kenya (Cofek) had threatened to go to court to block the process but it has since shelved these plans on legal advice.
“Our lawyers advised that our argument that the tax would be exploited to increase rents would not hold in court,” said Cofek chief executive Stephen Mutoro.

Mr Mutoro, however, said Cofek was still opposed to the move but hoped KRA would consult widely to ensure that tenants do not suffer. The expansion of the tax net will also see churches taxed in future for income from their business undertakings.

The taxation of rental incomes is part of KRA’s effort to meet the high revenue collection targets set by the Treasury to finance the Sh1.45 trillion national Budget.

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

The rental tax will be paid by all landlords earning more than Sh10,000 per month from rent and graduated according to the Pay As You Earn scale.
The law on property taxes came into effect in 2007 but its enforcement has been hampered by logistic challenges.

Although many owners of properties being managed by professionals are already paying tax, it is 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.

Property developers will also part with a share of their income as KRA through a liability tax on individual directors of real estate firms intends to ensure compliance with the law.

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