Taxman puts 20,000 landlords on notice to raise Sh3 billion

Kenya Revenue Authority Commissioner General John Njiraini listens to iTax Support Officer Sylvia Omolo (left) during a tour of the iTax System Support Centre at Nairobi Railways Club last year. The taxman looks forward to netting more landlords. [PHOTO: JONAH ONYANGO/standard]

The Kenya Revenue Authority (KRA) plans to raise Sh3 billion by bringing on board 20,000 individual landlords in the 2015-16 financial year. Commissioner General John Njiraini said they have obtained data on all property owners and developments undertaken in all major towns in the country.

“Having realised data on landlords in all the major towns where the property market is doing well, it is our hope that we will be able to increase the tax on rental income by another Sh3 billion in the 2015-16 financial year,” Mr Njiraini stated. So far, KRA has netted 20,000 individual landlords into the tax bracket and targets to net another 20,000 during the 2015-16 financial year,” he added.

Some of the towns already looped into the taxman net include Nairobi, Kiambu, Thika, Murang’a and Machakos, Mombasa, Eldoret, Kisumu and Nakuru. The taxman has since June 2013 been trying to find  details of the landlords to ensure they pay tax to the Government.

Njiraini noted that the mapping exercise is being undertaken through the Kenya National Spatial Data Infrastructure project - whose implementation is spearheaded by the Ministry of Lands under the Survey of Kenya department. “To identify property and their owners for tax purposes, KRA has been undertaking an exercise that entails matching existing taxman data with data-sets currently held by various public institutions including the Ministry of Lands that is involved in land registration and approval of property developments,” he added.

National Treasury Cabinet Secretary Henry Rotich in his 2013-14 Budget directed KRA to leverage on technology in mapping out all rental property in urban areas and put in place a robust institutional framework for bringing all the landlords into the tax bracket in the next six months.

“Having realised data on landlord in all the major towns where the property market is doing well, it is our hope that we will be able to increase the tax on rental income by another Sh3 billion the 2015-16 financial year,” Njiraini stated.

Housing units

Even though the industry is registering progress in term of cash, supply of housing units is still low with only 50,000 units compared to a demand of more than 250,000 units. The proposal to tax property owners was started by the former Finance Minister Njeru Githae while reading the 2012-13 budget.

Njiraini complained that collection of rental income tax has not been commensurate with the growth in rental business and property developments.

He however, expressed optimism that the ongoing mapping process and new tax measures on landlords will help to spur growth on this front. So far, the taxman has collected additional revenue of Sh5 billion from the profiled landlords over and above the Sh2 billion declared voluntarily by complying landlords per annum.

When it was introduced, landlords earning more than Sh10,000 from rental houses were supposed to pay income tax at the prevailing Pay As You Earn rates.

Property owners are required to pay 30 per cent of their rental income as provided in the Income Tax Act. Landlords operating commercial buildings will pay a 30 per cent levy and 16 per cent VAT bringing the new total to 46 per cent. This is over and above land rates they pay to county governments and the stamp duty payable to the Ministry of Lands. The Finance Bill 2015 has also introduced a withholding tax regime on rental income at a rate of 12 per cent. KRA will identify and appoint agents to withhold and remit tax on rental income.

Property or estate agents and corporate tenants will be targeted as withholding agents. For the time being, the taxman has been implementing the strategy, and Njiraini confirmed that some landlords have sought legal redress to dispute the whole process.

He said there are about 20 cases where landlords have disputed tax assessments, utilising the legal mechanisms available to them to settle tax disputes, including the Local Committee. The committee has now been replaced by the newly created Tax Appeals Tribunal.