The Kenya Revenue Authority (KRA) netted more than 10,000 landlords into its database in the year ended June 2024, after rolling out mapping technology and enhanced use of data from third-party sources such as Kenya Power and banks to catch cheats.
Internal documents seen by Business Daily said that the taxman recruited 10,425 rental income taxpayers in the review period. The document, however, does not disclose the comparative number of landlords netted in the previous year.
The development followed the implementation of Block Management Strategy (BMS), which uses a geographic information system (GIS) to map out buildings in various residences.
The system classifies various estates into blocks of flats, where KRA will identify landlords who are tax-compliant and those who are not in the tax net and detect new buildings springing up.
The recruitment of new real estate owners helped Times Towers add 46,126 monthly rental income tax obligations into its system, according to the document, realising nearly Sh3.87 billion in revenue.
The taxman did not reveal the total rental income taxes it collected in the review year, which also saw it rely on property agents to enhance compliance amongst property owners.
During the year, the KRA “simplified” the compliance process by requiring residential property owners generating an average of between Sh24,000 and Sh1.25 million every month to pay tax at the rate of 7.5 percent of gross income.
The current tax rate for landlords took effect in January 2024 after lawmakers amended Section 6A of the Income Tax Act through the Finance Act 2023. The changes lowered the tax rate for property owners with annual rental income of between Sh288,000 and Sh15 million to 7.5 percent from 10 percent previously.
They are required to file a monthly tax return to the KRA declaring the gross earnings from which tax payable is computed at the rate of 7.5 percent.
“The simplification was introduced to enhance compliance. Though it has increased the number of taxpayers, it has not achieved the envisaged compliance [in remitting rental income tax],” Treasury wrote in the 2024 Budget Policy Statement.
“To address compliance challenges in rental income taxation, the government will enhance the registration of property agents, mapping of properties, and leveraging on technology. In this regard, and to ensure fairness and equity, the government will review taxation of residential rental income,” it added.
Past data showed KRA had 76,025 real estate owners in its register in June 2021, a 29 percent growth over 58,934 property owners in June 2018.
The Treasury cited analysis of residential rental income tax covering the year 2022 which showed that collections underperformed targets by Sh27 billion.
Amidst a bid by the taxman to catch tax-evading landlords, the Estate Agents Registration Board (EARB) in March warned property owners against employing unregistered real estate agents.
“In order for the EARB to continue protecting the interest of the public and enhance professionalism in the real estate sector, consumers are advised to deal with registered estate agents only,” Hellen Abuya, the board’s registrar, said in a notice.
The Estate Agents Act requires practitioners to register with the board and be issued with an annual practicing certificate.
Registration of estate agents is open to full members of the Institution of Surveyors of Kenya practising in valuation and estate management, building and land management, or a holder of a degree, diploma, or licence from a university or college recognised by the board.
The board can also register a member who does not have the aforementioned qualifications if it is satisfied that he or she is of good character and has not been convicted of fraud or dishonesty, amongst other qualifications.
A person practising as an estate agent without requisite registrations faces a fine of Sh20,000 or two-year jail or both upon conviction.
The KRA also relies on provisions of the Tax Procedures Act 2015, which allows it to access electronic data on taxpayers from third parties without seeking a court order, thanks to changes through the Finance Act 2016.
The records include Kenya Power metering records, bank statements, import records, motor vehicle registration details, water bills, and data from the Kenya Civil Aviation Authority.
KRA has identified real estate (landlords), high net-worth individuals , small traders in informal settings, and businesses operating online as sectors with high potential for growing revenue.
