KRA rolls out new scheme to get 10pc of what you pay in rent

From January, landlords will only receive 90 per cent of rental income from their tenants. The remainder will be kept aside for the Kenya Revenue Authority (KRA).

The taxman wants to collect Sh500 million from tenants, real estate agents, Government departments, agencies and ministries in the next six months in a bid to bypass landlords who have been slow in remitting rental income tax.

KRA will recruit large corporates and real estate agents like Knight Frank, HassConsult, Lloyd Masika and Regent Management, to make the 10 per cent deduction and remit it directly to its accounts.

Wire the money

In a statement yesterday, KRA’s domestic tax unit said it would appoint tenants and realtors as withholding tax agents to deduct 10 per cent of gross rent and wire the money.

The Finance Act 2016 introduced Section 35(3)(j) of the Income Tax Act, Cap 470, which provides for withholding tax on gross rent payable to resident landlords. This will apply for rent payable for both residential and commercial property.

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“We have commenced appointment of withholding agents who are to be notified in writing about their obligations to the new law,” KRA said.

The taxman said once an agent is appointed, he will be obligated to make payments on the 20th day of each month after the rent is paid.

Those who default will be charged a penalty of 10 per cent of the tax they are meant to pay, and an additional 1 per cent for each month they fail to clear with KRA.

For non-resident landlords, the withholding taxes will be higher at 30 per cent, with the iTax system expected to automatically calculate the tax once it is declared.

The move will be crucial for KRA since it already holds returns from real estate agents, which indicate the firms’ income from fees and can be used to calculate rents and assess money owed to the State.

Large corporates who occupy several locations will also be a target due to the availability of information and formalised tax payment procedures.

KRA intends to create a database through agents who collect data relating to buildings and their owners.

The agency said the current drive would not target small tenants, easing fears that passing on landlords’ information could translate to higher rent or conflict over standing contractual agreements.

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

Intensified campaigns rolled out the last financial year to improve landlords’ tax compliance had little success. Out of Sh10 billion that KRA sought to raise, it got just Sh2 billion.

In 2012, KRA said less than 40 per cent of landlords and developers had complied with tax requirements.