KRA closer to netting landlords for tax on rental income

By NICHOLAS WAITATHU

NAIROBI, KENYA: It will soon be easier to detect landlords who have been evading paying taxes on their rental income to the Kenya Revenue Authority.  

The taxman has engaged the services of various Government and private institutions to compile data on all property owners in the country.

Through the Kenya National Spatial Data Infrastructure (KNSDI) project, all land parcels and properties will be mapped.

“The mapping of areas around Nairobi and Mombasa is already on-going,” KRA’s domestic tax commissioner in charge of small and medium taxpayers, Ms Alice Owuor, said last week.

The institution is working with the Kenya Institute of Surveying and Mapping at the Ministry of Lands, and the Ministry of Information, Communication and Technology.

The KNSDI initiative is expected to ease the difficulties the taxman has been facing in accessing information on landlords and the rental income they receive.   

Ms Owuor added that the ICT ministry is also implementing the National Addressing System, which is aimed at facilitating the identification of buildings.

“By June, KRA plans to reach over 10,000 landlords who have either been declaring nil returns or not filing returns despite owning rental properties.”

TARGETS

Since July 2012, when the Real Estate Sector Revenue Enhancement Initiative was started, KRA has collected over Sh3 billion from property owners and developers in addition to what is declared voluntarily by compliant landlords.

“So far, a total of 1,400 cases have been profiled and assessed for tax amounting to Sh3.5 billion. Tax enforcement using various measures — including issuance of agency notices to third parties and placing caveats on properties of defaulters — is being undertaken on a continuous basis to ensure payment of tax due,” Owuor said.

National Treasury Cabinet Secretary Henry Rotich, when reading  the 2013/14 Budget in Parliament last year, directed KRA to leverage on technology to map rental property in urban areas, and put in place a robust institutional framework to bring all landlords into the tax bracket by December this year.

Mr Rotich urged KRA to use the Geographic Information System (GIS) to map buildings and establish who owned what and if they were paying tax on their properties.

However, KRA Commissioner General John Njiraini complained that a lack of comprehensive data was frustrating collection of cash from the booming real estate sector.

“We do not have ample data about the landlords and where they have invested and the rental income they earn every month. This has frustrated our efforts to boost revenue collection,” said Mr Njiraini last year when releasing revenue figures for the 2012/13 financial year, which showed KRA collected Sh1 billion in rental income tax.

Since the start of the current fiscal year in July 2013, KRA has collected Sh1.5 billion from landlords. Owuor says the authority plans to increase this figure to Sh2.5 billion by June 30. 

According to the Income Tax Act, property owners are required to remit 30 per cent of their rental income to the taxman.

Landlords operating commercial buildings are charged an additional 16 per cent as VAT, and remit land rates to county governments. Other property taxes include Contributions in Lieu of Rates (CILOR), and stamp duties on transfers and leases that are paid to the Ministry of Lands.  

In a recent interview, Ark Consult Director Reginald Okumu said the gap in housing — estimated to be more than 200,000 units a year — could be narrowed if the Government offered developers construction incentives.

A report published last week by the Kenya Property Development Association (KPDA) and HassConsult showed there has already been a slowdown in property development in Nairobi, which was attributed to the county increasing construction permit fees.

“The increase in fees has contributed to the housing crisis. The fee has been increased by a multiple of between 200 and 1,250 — from 0.001 to 0.006 per cent of the cost of construction to 1.25 per cent,” said KPDA Chief Executive Robyn Emerson.

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