Taxman targets ‘Mukuru, Kariobangi’ landlords

The tax amnesty on rental income recently announced by the Government was meant to encourage compliance by landlords mainly in the lower-end of the property market, says the taxman.

In his budget statement this year, Treasury Cabinet Secretary Henry Rotich waived interest and penalties on rental income due for 2013 and prior as well as any penalty and interest for 2014 and 2015.

KRA Commissioner General John Njiraini (right) and Commissioner of Domestic Taxes Alice Owour at a past press conference. (PHOTO: FILE / STANDARD)

He said the Government also streamlined tax on rental income by deducting it from gross income rather than net income, which has been criticised for being complicated and encouraging non-compliance.

The Kenya Revenue Authority (KRA) Commissioner of Domestic Taxes Alice Owuor says that one of the challenges the agency faces in collecting rental income is the informal nature of the real estate sector, which has grown mainly because of a strong middle-class.

Simple regime

“Real estate development is not only up-market but also in the middle and lower-income areas. The latter lot do not understand how this sector is run and the regulations, mostly due to the lower levels of literacy,” says Owuor. “That is why we came up with a new simple and straightforward rental income tax regime.”

She says many landlords do not keep records hence have no way of determining their rental income or even their expenditure.

Landlords earning an annual gross rental income of Sh10 million or less will pay a flat rate of 12 per cent of gross income. However, a person may make a petition in writing to the commissioner of domestic taxes to be excluded from this tax, in which case the net rental income would be taxed at 30 per cent.

The amnesty provided by the Government will only apply to individuals who file their self-assessment returns or amended returns for 2014 and 2015 by June 30, 2016 before the new ‘12 per cent on gross’ tax regime kicks in on January 1, 2016.

Informal settlements

KRA Commissioner General John Njiraini said that they would be going deeper into the informal settlements to include all landlords on their database. “We are targeting the ‘Kariobangi and Mukuru’ types of settlements. This will not be an easy exercise as it will involve a lot of human resource to get the data and also to educate the landlords,” he said.

Most of the landlords in these settlements own structures, not blocks of houses. More so, the tradition of ‘third parties’ in the areas poses a challenge in getting all the landlords on board.

“We have invested in technology infrastructure, which will help us in mapping the areas. This will tell us who is the owner, and who is the tenant and the rent value of the house in relation to its surroundings. Once the details are on our national data base, it will be easy for us to monitor if the landlords’ declaration matches the earlier value recorded and if it corresponds with the current market value,” said Njiraini.

KRA is aiming to net over 60,000 landlords by 2018, with an average collection of Sh3 billion expected in 2015-2016. About 20,000 new landlords are already on board, it says.