Landlords of residential and commercial properties in Kenya who have not been paying income tax were some of the biggest losers in this year’s Budget after Finance Minister Njeru Githae directed the Kenya Revenue Authority to net them.According to the Budget tabled in Parliament yesterday, the tax man is currently mapping out all residential and commercial areas in Kenya with a view of coming up with a comprehensive strategy that will ensure that all landlords pay income tax including stiff penalties for serial defaulters. “The real estate sector has been very vibrant and it is only fair that they (landlords) too pay their share in nation building,” said Mr Githae.
In mapping out the tenants, KRA said it is in the process of preparing a register of all properties in major towns—an exercise that started mid-last year and is believed to be almost complete. “We have sent out demand letters to the concerned owners and would like to warn others that unless they pay up, we will catch up with them and they will pay not only the taxes due but also penalties and interest,” said John Njiraini.
The announcement confirms a topic that has been doing rounds among analysts on the need to tame errant landlords who increasingly hike their rents, but do not remit to the tax man his dues having used income tax requirement as a justification for their actions.
Just recently, KRA hinted that landlords who have not been remitting rental income tax to Kenya Revenue Authority (KRA) stand to lose up to 30 per cent of their yearly income plus a possibility of penalties and interest after the tax man vowed to pursue evasive property owners. “Rental income is taxed like any other income and is charged normally between the ranges between 28 to 32 per cent of the net rental income,” said Nikhil Hira, a tax partner at Deloitte.
Those who understand say that landlords who will bear the tax man’s wrath the most, are those with rental property in the middle and low-income areas where most tenants pay cash and as such hard to trace. In the high-end, landlords will have a difficult task of hiding their rental income from the tax man as most tenants tend to pay in cheques. Property analysts say some landlords may resort to increasing rent to off-set tax man’s demands a move that may re-bound on them.