eRITS: A bold step towards leveraging tech to unlock real estate revenue

George Obell, Acting Commissioner for Micro and Small Taxpayers at Kenya Revenue Authority. [Courtesy]

In the past decade, the global landscape of tax administration has undergone enormous transformation. Digital innovation has played a key role in redefining how revenue authorities operate and engage with taxpayers. In Kenya, the tax agency has not only embraced this global trend but is now at the forefront of revolutionising tax administration through the strategic deployment of technology.

It is evident that the evolving nature of the economy, propelled by digitalisation and a fast changing technological environment demands that tax authorities adapt with speed. Tax administrations must be committed to digital transformation to enable them enhance efficiency, seal revenue leakages, expand the tax base, and simplify compliance processes for taxpayers.

One of the most significant areas where technology can bring about transformational change is in the real estate sector which remains a cornerstone of Kenya’s economic development. According to the 2023/2024 Real Estate Survey by the Kenya National Bureau of Statistics, the real estate sector contributed a remarkable 33.7 per cent growth to the country’s Gross Domestic Product (GDP). This growth is a reflection of Kenya’s expanding population, growing middle class, which has led to increased demand for residential and commercial properties.

Despite the sector’s central role in wealth creation, its contribution to tax base does not match its prospective. The Monthly Rental Income tax, which is the main obligation, is yet to realise its full potential. Introduced in 2016, MRI targets landlords earning between Sh288,000 and Sh15 million annually. KRA has made concerted efforts to bring landlords into the tax net but earlier systems encountered substantial challenges.

For example, over the past three financial years, rental income tax collections remained nominal compared to potential revenue. In FY 2021/2022, MRI collection stood at Sh12.3 billion, rising marginally to Sh13.6 billion in FY 2022/2023, and Sh14.4 billion in FY 2023/2024. However, estimates place the sector’s potential revenue at over Sh100 billion. This indicates that only approximately 14 per cent of the sector’s potential is being realised, calling for urgent intervention.

To address this challenge and to fully tap into the revenue potential of real estate, Kenya Revenue Authority (KRA) recently launched the electronic Rental Income Tax System (eRITS), a digital game-changer in tax compliance. This platform represents a milestone in the country’s journey towards modern tax administration.

eRITS is designed to be fully integrated with existing rental property management systems, creating a seamless digital ecosystem for rental income tax compliance. Landlords and property managers will have access to a centralised digital platform where they can compute, file, and pay their taxes with ease and transparency.

The system enhances compliance by ensuring that taxes paid reflect actual rental income, not a shilling more, not a shilling less. More importantly, this data-driven approach will play a critical role in expanding the tax base, thereby reducing the burden on compliant taxpayers and promoting fairness in tax system.

Further, by making tax compliance process simpler and less burdensome, the system will see more landlords voluntarily fulfill their tax obligations without coercion. eRITS is not just a revenue collection tool, it is a voluntary compliance enabler. This system will continue to build on previous efforts by KRA, such as the deployment of Revenue Service Assistants and implementation of the block management strategy, which successfully brought over 10,000 new landlords into the tax bracket in the 2023/2024 financial year. eRITS is expected to offer landlords not only a tax solution but also a property management platform. This will encourage landlords to engage more actively and transparently with KRA while gaining tools to better manage their rental businesses.

Tax equity can only be achieved when all eligible taxpayers contribute their fair share of taxes. Through eRITS, KRA will create a level playing field. This will eliminate incidences where compliant taxpayers carry the burden while many eligible taxpayers remain outside the tax net.