Fresh KRA bid to net rental income might succeed if done well
Times Tower, the headquarters of Kenya Revenue Authority in Nairobi. PHOTO | NMG
Plans by the Kenya Revenue Authority (KRA) to move from house to house to collect information from tenants on their landlords have elicited reactions.
On October 18, 2022, the KRA notified the public it intends to collect data on rental properties in Nairobi and its metropolis. The taxman intends to start with properties in Pangani, Ngara, Eastleigh, California, Kasarani, Mwiki, Njiru, Ruai, Upper Savannah, Embakasi, Mihango, Utawala, Lower Savannah, South B, South C, Langata, Kileleshwa and Kilimani, among others.
The taxman’s move represents a change in approach on KRA’s part as it has previously collected similar information through Kenya Power and other agencies.
Rental Income Tax (RIT) is charged on gains or profits from any right granted to any other person for the use or occupation of a property. RIT is charged on both commercial and residential premises. A taxpayer can pay RIT either monthly or annually subject to conditions set out in the Income Tax Act.
Section 59 of the Income Tax Act obligates a tenant to furnish KRA with details on the landlord’s name and address and a full and true statement of the rent or any other consideration payable for the occupation.
The taxman has several mechanisms to enforce payment of RIT such as raising assessments and issuing agency notices. The Finance Act 2022 introduced another mechanism by empowering the KRA to dispose of taxpayer’s property for tax liabilities.
Effective July 1, 2022, KRA can issue a notice to the Land Registrar to hold a taxpayer’s property as security for unpaid RIT and later dispose of the property if the taxpayer fails to settle the tax liability within two months.
The risk of losing the property because of unpaid tax is now real.
Landlords should not wait for KRA to come for them, instead, they can undertake a self-assessment, pay the tax due and seek a waiver on any penalties and interest. A landlord doesn’t need to pay all accrued RIT at once as they can negotiate with KRA to pay their accrued taxes in instalments. It is, therefore, a suitable time for landlords to engage KRA.
The KRA, on its part, should accommodate landlords and agree to structured payments. In addition, the taxman should only issue reasonable and accurate assessments to avoid antagonising landlords. Erroneous or excessive tax assessments from KRA are likely to result in costly disputes and delayed revenue collection and should, therefore, be avoided.
While we expect the data collection exercise to boost revenue from RIT, the taxman should consider some key issues. Firstly, KRA should comply with the Data Protection Act. The Act regulates the handling of personal data.
Details such as the names and location data of landlords would constitute personal data. Other details, which may be collected, such as a landlord’s property details, would constitute a special category of personal data known as sensitive personal data.
While KRA has lawful grounds for collecting such data under the law, it will need to conduct a data protection impact assessment and prepare a report on the same before the data collection exercise, if this has not been done.
→ The writers are partners at Cliffe Dekker Hofmeyr incorporating Kieti Law LLP and Joseph Macharia (Candidate Attorney)
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