The cat and mouse game between landlords and the Kenya Revenue Authority (KRA) is a marathon that will not end soon.
Residential rental income is charged at a flat rate of 10 per cent on gross rent received per month. It should be remitted to the taxman when landlords receive rent from their tenants either monthly, quarterly, semi-annually or annually. However, returns must be filed monthly.
Rental income is filed on or before the 20th of the following month. For instance, rent received in January is declared and tax paid on or before 20th February.
Landlords are required to complete a monthly tax return online via iTax by declaring the gross rent and tax payable will be computed automatically at a rate of 10 per cent.
For any month that the landlord does not receive any rent, he/she shall file a nil return.
Residential rental income is final tax and, therefore, people are not required to declare the same in their annual income tax returns.
Currently, KRA has gone a step further to embrace technology towards setting the trap on landlords.
The taxman is in the process of commissioning a block management system that uses a Geographic Information System (GIS) to outline buildings. The technology will further enable KRA to keep a tab of payments by landlords using the geo-mapping technology.
The taxman has not tired over the past decade of implementing several measures to crack down on landlords’ sidestepping its tax dragnet.
KRA also considered accessing bank records of property owners in a bid to monitor both rental income and utility payments made to Kenya Power and Nairobi Water and Sewerage Company.
The geo-mapping technology will assist the taxman to classify estates into blocks and flats towards distinguishing the tax compliant landlords of commercial and residential property from those not captured.
The rental tax was introduced by the Finance Act of 2015, which amended the Income Tax Act of 2015 through Section 6A which imposed a residential income tax that took effect on 1st January 2016.
Failure to file for the tax on 20th of every month attracts penalties on the landlord at the rate of Sh2,000 or five per cent of the tax due, whichever is higher for individuals and Sh20,000 or five per cent of the tax due, whichever is higher for corporates.
There is a distinction between commercial rental income and residential rental income for tax purposes.
Commercial rental income attracts Value Added Tax (VAT) under the VAT Act of 2013 whereas residential income tax does not.
- Harold Ayodo is an Advocate of the High Court of Kenya.
