KRA adopting technology to ensure landlords can't escape rental income tax
The Kenya Revenue Authority’s (KRA) announcement to tighten the noose around landlords’ necks regarding rental income tax was a setback for landlords. As landlords, we have a WhatsApp Group where the majority of members are considering several options to counter the KRA move, including slapping tenants with notices to increase rent beginning January 1, 2023 to break even. Some of us are even considering hiding information from the KRA, but owning an apartment building may be difficult to conceal.
Several landlords in Nairobi have engaged tax consultants towards ensuring they reap profits after parting with rental income tax.
The move by the taxman to go after landlords has a ripple effect as even tenants are shuddering at the possibility of an increase in rent anytime from today.
According to landlords, no one seems to be on their side in cases of rental disputes with rogue tenants and now the KRA has emerged as another enemy.
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For starters, rental income tax is charged on the rent paid to the landlord by the tenant of a residential property. Rental income tax was introduced in 2015 and took effect in January of the following year.
When the tax was introduced, landlords earning gross rental income of between Sh144,000 and Sh10 million a year were required to pay 10 per cent as rental income tax. Last year, the requirement was revised to gross earnings of at least Sh288,000 on the lower end and Sh15 million on the upper limit. A landlord is required to pay rental income tax by the 20th of the next month if they have not applied for the annual tax payment option.
Late compliance attracts a Sh2,000 penalty or five per cent of the rental income tax due while penalties for non-compliance are heavier.
KRA has shifted to top gear to ensure more landlords outside the tax bracket are roped in. It is increasingly difficult for landlords to evade KRA which has embraced technology to ensure compliance. As of June 2021, the taxman had over 76,000 landlords in its tax bracket.
To cast its net wider, KRA recently initiated a mapping exercise using geographical information system (GIS) to mark out residential buildings in Nairobi and other urban centres with the aim of verifying their compliance with the payment of rental income tax.
The process involves KRA agents physically identifying residential buildings block by block and feeding that information to a block management system (BMS) which then accurately captures the number of buildings in a certain area.
This information is then verified for accuracy using GIS and for rental income tax compliance when correlated with information from other money trails such as utility bill payments and tenant tax returns.
The system will also allow KRA to know which new buildings are coming up in the block. Separately, landlords are also trying to ensure their net take home is not slashed.
- Harold Ayodo is an Advocate of the High Court
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