More forces oppose 5 per cent rise in rental tax
By Mwangi Muiruri | May 14th 2020
Stakeholders in the property market are up in arms against the National Treasury’s proposal to increase taxes on rental yields. The proposal is contained in the Finance Bill 2020.
This, they note will hurt landlords who will in turn pass the high rent to tenants already battered by the pandemic.
The National Treasury wants to amend Section 6A of the Income Tax Act to pave way for the hike of residential income tax from the current 10 per cent to 15 per cent.
This is interpreted as a quick-fix measure to help the government draw a 2020/21 budget under harsh economic circumstances.
Central Region Landlords Council has dismissed the proposal as anti-business and not worth the debate.
“Currently, we have suffered on average a 40 per cent rental yield dip for the past two months. If this coronavirus tragedy continues for the next three months, then the dip will aggravate to 70 per cent. If the country was to be totally locked down, the dip will rise to 90 per cent,” said Council Chairman Peter M’Mukindia.
He said landlords want property taxes suspended for the period coronavirus will be at play, and afterwards, reintroduce the tax in phases.
“For every month this pandemic is with us, we seek three months of tax free recovery window. Now that this virus has been with us for the past two months, the earliest we can hope for economic reprieve is November; and we are already entering the third month of this viral distress, meaning we will be seeking tax relief deep into next year,” he said.
Already, an audit firm KPMG has warned that the budget already tabled in Parliament will have a deficit of more than Sh600 billion.
It is a deficit that will come to meet rising national debt, inflation and shrinking taxation base - forcing the government to moot ways of netting any possible coin to its pulse.
The KPMG has since issued its advisory opinion the Treasury arguing that an increase in rental income tax will directly hurt the landlords.
“A direct taxation hurt for the landlord means a direct hurt for the tenant through increased rental rates. The economic environment as of now does not support this passing on of economic hurts,” it said.
The proposed five per cent increase in rental tax goes against advice by Cytonn Investment - an investment firm which had last week proposed that the property market be cushioned by reduction of taxation rates.
In its weekly reports, the firm had argued that post coronavirus turnaround strategy should involve a raft of measures that will reduce the cost of doing business, offer more playing field for both investors and developers in the sector as well as seek more solid ways of solidifying disposable incomes.
The report had projected rental yields to dip to a point where the sector is losing its allure and only a recovery strategy that can help resuscitate it.
Mathira MP Rigathi Gachagua said the sector has been hurt by banks' refusal to review terms of the credit service. “The same Treasury campaigned for the scrapping of interest rate caps. It brought back the vicious predatory lending behaviour of majority of our banks. This has made the cost of credit go up,” he said.
Institute of Budget and Devolution boss Elias Mbau said the additional tax will be passed on to the consumer and urged Treasury to come up with fiscal policies that offer reprieve to citizens.
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