The Kenya Revenue Authority (KRA) has now trained its sights on property owners by using Kenya Power meter registrations to identify landlords and slap huge tax demands on defaulters.
Landlords have in recent weeks been receiving huge, backdated tax demands from KRA based on estimates calculated from electricity bills that are linked to their tenants.
Taxpayers are required to disclose details of their landlords while filing their annual returns, providing the taxman with a treasure-trove of information that is now being used to net evaders.
KRA is singling out individuals with multiple electricity meters registered under their names and estimating taxes due during the years when the meters have been active.
“Records held in this office indicate that you own rental property and you have failed to declare the rental income from your property as required of you under the law. Please note that the amounts assessed are due and payable immediately. If you fail to comply with this notice within a period of 30 days from the date of this notice, tax recovery measures may be instituted without any further reference to you,” reads one of the letters in which KRA is demanding Sh6.4 million from a landlord.
KRA is by law empowered to access electronic data on taxpayers without seeking a court order. The taxman is using meter locations to tell where the property is situated while the level of electricity consumption is used to estimate the size of the rental house.
The neighbourhood and consumption amount is then used to estimate rental income and hence the tax payable.
The defaulters are then effectively roped into the tax base.
Letters seen by the Business Daily also show that KRA is penalising the landlords for both late filing and late payment plus interest on the amount due, payable within one month.
Other landlords who spoke to the Business Daily criticised the approach, which they said had become a costly affair as they engage lawyers and tax experts to negotiate the hefty tax demands and clear their records.
“It is a very arbitrary way of enforcing compliance, which ignores various dynamics of rental income business. It could be shared ownership, a family building or even built using loans. Just making assumptions that because my tenants consume so much power so it means I earn so much rent is really unrealistic,” said a landlord who owns rental apartments on Nairobi’s Ngong Road while requesting anonymity for fear of victimisation by the taxman.
KRA had not responded to our queries on the issue by the time of going to press.
While releasing its two-year corporate plan in January this year, KRA said it would use utility bills data and information from third parties to recruit more landlords into the tax base with a target of netting at least 22,000 landlords each year.
The tax man had recruited 58,934 landlords already as at June 2018, narrowly missing its target of 60,000, representing 98 percent performance.
“Access to third-party data from banks and utility providers was instrumental in identification of the landlords,” KRA noted in the strategic plan outline.
The taxman has also planned to carry out a countrywide property mapping that will tell locations, size and owners of properties to start collecting rental income.
Tax experts say the plan by KRA to expand its tax base is sound, but the method it is using could create even more resistance from landlords who are quickly finding other ways to evade the tax.
Deloitte East Africa Tax Partner Fred Omondi said the tracking exercise has been ongoing for a while. He said the taxman may have found it a convenient way to smoke out landlords after it realised that the planned property mapping was an uphill task.
“Using electricity meters to estimate tax may be unorthodox, but it is within their right to make tax estimates and try to recover as much as possible. The best approach would be to conduct the property mapping they had planned more than three years ago, but that would also require more work and more resources,” said Mr Omondi.
His Grant Thorton counterpart, Samuel Mwaura, said the move was likely to cause several disputes owing to its arbitrary application and encourage informal ways of accessing utilities like water and power to avoid the risk of having personal data shared with KRA.
The taxman is also said to be sending interns to property locations and gathering information from caretakers who innocently reveal ownership, rental rates and number of units which are then used to make the tax demands.
The taxman could also access banking patterns suggestive of rental income from landlords particularly those who use agents since the Central Bank of Kenya requires banks and other financial services providers to collect Personal Identification Number (PIN) certificates of new clients as part of the Know Your Customer (KYC) checklist.