Treasury urged to give tax amnesty a chance

An audit firm has petitioned the Government to offer blanket amnesty to all landlords to encourage compliance with the rental property tax.

Grant Thornton, a global tax, audit and advisory firm said a blanket waiver on all past tax dues would encourage landlords to register willingly and start paying taxes on their rental property.

“It will be easier for the landlords to come forward and register, and start paying the taxes if they are allowed to start on a clean slate,” said Parag Shah, a Senior Analyst at Grant Thornton.

Grant Thornton is the sixth largest audit and advisory firm in the world. It started operating in Kenya in January 2012 when a local audit firm, VKM Kenya, was granted local franchise of the global firm.

The firm held its post budget analysis this week attended by CEOs, CFOs, auditors and bankers. The partners and analysts at the firm presented their expert views on the budget presented by Cabinet Secretary for treasury Henry Rotich. Rotich’s directive to Kenya Revenue Authority to map out all rental properties in urban areas and put in place a strong system to cover all landlords under the tax net by December 2013 dominated discussions at the briefing.

The audit firm also suggested a staggered implementation of the Capital Gains Tax, warning it could hurt the real estate sector if aggressively pursued.

In his address to the parliament, Rotich had proposed the reintroduction of the Capital Gains Tax on gains from disposal of property and marketable security to improve revenue collection.

Counter productive

But Parag warned that the move could be counter productive saying it could encourage tax evasion, while discouraging further investment in the real estate sector.

 “Let this matter be introduced in the sectors of energy and mining but not the real estate sector … this sector is still expected to flourish but the Capital Gains Tax would bring back the parallel market to avoid paying tax,”

Samuel Mwaura, the Tax Director at Grant Thornton described Rotich’s budget as ambitious but warned that implementing it would pose serious challenges.

He said: “KRA is already facing shortfalls in revenue collection while the county governments are likely to impose more levies. This will just overtax the already burdened public.”

He added that the proposed introduction of VAT on maize and wheat floor, milk, bread and sanitary towels would also hurt the poor more, and erode the little gain they enjoyed when the minimum wage was increased by 14 per cent on Labour Day. Vipul Shah, the founder and senior partner at the firm said the proposed 1.5 per cent railway levy imposed on imports would hurt the consumer.

 “Wananchi may take too long to realise the benefits of the heavy investment on railways and ports, while importers will just pass the cost to the consumer.”

Kamal Shah, the managing partner at Grant Thornton said the firm would be holding budget analyses every year to boost its clients’ ability to scrutinise the budgets.