New tough measures to net landlords

Landlords could find it nearly impossible to dodge the taxman after new measures to rope them in were unveiled yesterday. National Treasury...

Landlords could find it nearly impossible to dodge the taxman after new measures to rope them in were unveiled yesterday.

National Treasury CS Henry Rotich empowered the Kenya Revenue Authority (KRA) to recruit agents to collect taxes on rental income.

And unlike before, almost every landlord now qualifies as a taxpayer after the introduction of amendments that placed the minimum taxable rental income at Sh12,000.

“I propose to gazette rules to facilitate the implementation of this law, introduce a minimum taxable rent income of Sh12,000 per month and empower the commissioner to appoint withholding tax agents for rental taxation,” Mr Rotich said.

Nearly all housing in the lower middle income neighbourhoods and above within major towns attract rent that is more than Sh12,000. Previous efforts to voluntarily bring landlords into the tax bracket have yielded little success. KRA has reported that it intensified campaigns rolled out last year that sought landlords to comply, but only realised Sh11 billion in 2015

Yesterday, Rotich was optimistic the measures unveiled would help in pushing landlords to be tax compliant.

“These measures are meant to encourage landlords to do a full and true declaration of their rental income.”

Rental income has been the toughest nut for KRA to crack in its bid to widen the tax bracket since most landlords operate informally.

Fears among tenants that passing on the landlords’ information could translate to higher rent is thought to have discouraged disclosures to KRA.

Ibrahim Khalif, a senior manager at Deloitte East Africa says failure by Rotich to enact laws relating to appointment of tax agents is to blame for the failure to tax landlords. In his proposal, KRA should appoint tenants as withholding agents –who will pay only a portion of their rent to their respective landlords and surrender the effective tax to the revenue agency.

“KRA should appoint all tenants who are individuals paying rent of a certain threshold to withhold tax at a given rate of say, 5 per cent as the 12 per cent proposed in 2015 is higher than the 10 per cent tax regime for landlords with annual rental income of not more than Sh10 million,” Mr Khalif told The Standard.

He added: “With mobile technology, it should be easy for the tenants to remit the tax withheld to the KRA.”

There is no study yet to indicate how much tenants are collectively paying, but it is easy to estimate it is in several ‘trillions’.

Mr Rotich also allowed the use of pension savings held by the National Social Security Fund in the development of low-cost housing, a segment that has been shunned by private developers because it guarantees lower returns

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