Property agents will now be required to deduct and remit rental income tax within 24 hours after receiving the payment from tenants.
This is one of the proposals in the Finance Bill, 2023 which introduces the withholding tax rental income collected by agents appointed by the Kenya Revenue Authority (KRA) commissioner in charge of domestic taxes.
“A person who deducts rental income tax under this section shall, within twenty-four hours after the deduction was made remit the amount so deducted to the Commissioner together with a return in writing of the tax deducted and such other information as the Commissioner may require,” reads part of the Finance Bill, 2023.
It is a far-reaching proposal that is likely to increase the compliance cost for agents, according to a tax alert by audit firm PWC.
Landlords with annual rental income of between Sh288,000 (Sh24,000 per month) and Sh15 million (Sh1.25 million per month) are required to file a monthly tax return declaring the gross earnings rent from which tax payable is computed at the rate of 10 percent.
Landlords are required to pay the money on the 20th of every month. However, the new proposal requires agents to remit the tax within 24 hours of receiving the tax payment.
“The Commissioner shall, upon receipt of the amount remitted under subsection (3AB), furnish the person from whom the rental income tax was withheld with a certificate stating the amount of the rent and tax deducted therefrom,” reads the Finance Bill, 2023.
It is not just income tax such as rental income paid to agents that will be required to be remitted within a day, the Finance Bill 2023 is also seeking the nod from the lawmakers to allow the taxman to impose daily remittance of excise duty on firms with a history of falsifying actual sales through self-declaration.
Rental income is one of the tax heads that the administration of President William Ruto will be relying on to finance its Sh3.6 trillion budget in the Financial Year 2023/24.
“Implementation of rental income tax measures by mapping rental properties. This will be achieved through enhanced field data analysis mopping up, integration of iTax (system) with the National Lands Information Management System and use of a mobile App,” says the Treasury in the budget documents.
While this might ensure that cash is paid at the earliest receipt of the cash rentals, it will also increase the cost of doing business for the agents who collect rents on behalf of landlords.
“This compliance burden is further enhanced by the requirement to deduct and remit the tax within twenty-four hours after making the deduction.
This places an impractical compliance burden on the taxpayer which is contrary to the design of a fair tax code which should not impose punitive compliance burdens on taxpayers,” said PWC.
Rental income tax on the hard-to-tax property market was introduced in January 2016 targeting the booming housing market.
The Finance Act, of 2020 increased the threshold for the annual gross rental income from Sh10 million or less to Sh15 million or less, with landlords falling under this category required to pay a residential rental income tax at a flat rate of 10 percent on the gross rental income.