Rents likely to rise as landlords pay 1.5pc on gross sales for affordable housing
President William Ruto interacts with Vicky Chepkorir a casual worker during the inspection of the ongoing construction of the 220 affordable housing units in Bomet County.
Small businesses and landlords have started feeling the weight of the affordable housing levy after the Kenya Revenue Authority (KRA) clarified they will pay 1.5 percent of gross sales, raising the risk of higher rents and product prices.
In an advisory, the KRA clarified that landlords will pay 1.5 percent of rent received and not net of incomes after deducting expenses like mortgage and property management fees.
The taxman also informed small businesses whose annual sales range between Sh1 million and Sh25 million that it will take the levy from their gross sales and not operating profits, hitting micro enterprises like barber shops, corner shops and motor garages.
This has raised the prospect of the micro firms and landlords increasing product prices and rent respectively as they transfer the cost to consumers and tenants.
Implementation of the controversial levy, which was initially applied to salaried employees only, was paused in February as the government worked on changes to include the informal sector as directed by the High Court.
“For clarity, AHL (Affordable Housing Levy), will be charged at the rate of 1.5 percent on the gross income received or accrued,” reads the advisory dated May 6, 2024.
“This includes…gross rental income, gross receipts (amount chargeable to turnover), and other sales, before subjecting the same to VAT (value added tax).”
Nikhil Hira, a tax expert, said putting a housing levy on rental income is misplaced. “A lot of rental income goes to pensioners. Adding to their tax seems unfair,” said Mr Hira.
An official at the KRA, who is not allowed to speak to the media, said property owners who show they have paid the housing levy as employees will not have their rental income subjected to the housing tax again. Currently, the KRA expects small businesses with sales of between Sh1 million and Sh25 million to pay a turnover tax of three percent on gross turnover.
Property owners receiving rental income of between Sh280,000 and Sh15 million pay a monthly rental income of 7.5 percent on gross rental income. Rents are likely to go up as landowners pass on the additional expense to tenants, aggravating the already high cost of living since they also pay the tax as employees, for example.
The property market has for a while remained subdued due to what some analysts tie to a saturated market that has seen property prices drop.
Small businesses, which employ over 85 percent of Kenyans, have also decried the inflationary pressures owing to increased taxes and prices of such inputs as fuel.
The KRA has for a long time tried to cast its net wider to reach the informal sector, but has struggled to get more taxpayers because the businesses do not have permanent establishments.
