I must admit, I arrived with one question in mind, “Will my landlord paying rental income tax mean further strain on my pockets?” As a tenant, any small change in tax law creates a mini panic attack in my being, I know my landlord won’t jeopardize his bottom-line out of pity. My stomach lining was thinning and my head aching when I got to Nailab. I was dreading what turned out to be a pretty fun evening being taught how to become good friends with the tax man.
Would it surprise you that public outcry was the cause of the Government’s reevaluation of their rental tax regimes?
As technology changes and the government becomes more aware of our financial goings on, it’s becoming harder and harder to hide from the tax man. They know where you live, what you earn and from whence this money comes. Before, it was harder for KRA to track landlords down especially in the rural areas.
Today, in addition to better tech, they’ve got inter governmental cooperation between bodies that let’s them know what you’re up to even before you’re ready to disclose it. To build a house one must have permits from various agencies e.g ‘pulling’ electricity requires Kenya Power to have a very accurate map of your property’s location. Once you’re up and running, your tenants begin to pay their bills via MPesa or to your bank and it then becomes impossible to hide. With all this spying tax evasion becomes a pipe dream and now you can be held accountable, not just for today’s tax, but for yesterday’s too. If I were a landlord this would make me understandably very, very worried.
— Rayhab Gachango (@potentash) October 1, 2015
Have you heard of the the punitive measures the government will take against non compliant landlords? They’re nothing to smile about. Do the words penalties and interest make you shudder? In cases where you fail to fully disclose tax due and KRA has evidence on the same, further tax assessment will be made and payment of tax due will be enforced one way or another. Your property may be placed on caveats and charges by the Ministry of Lands or even auctioned under section 103 of the Income Tax Act. The government may also issue agency notices to banks and 3rd parties to recover tax or even dispose of the defaulter’s good using a bailiff.
Considering all these, is it any wonder that landlords petitioned the government for mercy? The landlords concerns included: 1. Tax amnesty; 2. A simplified tax regime on rental income; 3. Reduced tax burden; 4. Reduced cost of compliance. Surprisingly the government listened and tabled a financial bill that passed in July 2015 granting rental income tax amnesty for back taxes from 2013 and back. Not only that, they also approved a with introduction of a simplified flat rate regime of 12% on gross rent paid monthly starting January 2016. The current system involves filing annually for tax with rates ranging from 10-30% dependent on rental income. Where expenditure records cannot be supported or are not available, landlords will enjoy a deduction of 40% of the gross rental income as expenditure. Furthermore, they have specialized help desks for all landlords at KRA offices and social media platforms to provide customer care to landlords that wish to apply for rental income amnesty.
So who qualifies for KRA’s rental amnesty?
Individual landlords who earn income for use or occupation of property owned and who shall voluntarily disclose undeclared rental income for years of income 2014 and 2015 and submit returns (original or amended) shall be eligible for 100% amnesty for interest and penalties upon full payment of the principal tax due. Further, such individuals shall be eligible for 100% tax amnesty for any principal tax, interest and penalties that may be due for year of income 2013 and prior.
Deceased landlords also qualify if their estate administrator or personal representative adheres to the rules. Persons living in the diaspora that own property in Kenya are also qualified for amnesty if they can prove they come into the country at least once every year and are thus still residents. If they are non residents a withholding tax of 30% of the gross rental income (one of the new punitive measures) will be imposed on them.
#RentalAmnesty doesn't apply if landlords have already been assessed or if under audit/investigation, are non residents…
— AfroMum (@Afro_Mum) October 1, 2015
Companies owning rental properties are not eligible for Rental Amnesty.
Individual landlords include those that rent out their servant’s quarters or their living space via AirBnB.
The first step towards complete tax compliance is to declare honestly all rental income for the year 2014/2015 and to apply for amnesty for the year 2013 and prior, 100% tax amnesty on principal taxes, interest and penalties shall be granted. You shall not be subjected to further tax compliance checks, audit or investigation for the years 2013 and prior if you fully declare any undisclosed rental income. Here’s where the tax man gets friendly. Unlike previously where all tax from undeclared rental income would be paid in one go, they allow you to pay in installments before the amnesty period is officially over on 30th June 2016.
Tax amnesty returns will be available in iTax system. Visit KRA website; www.kra.go.ke
The best part of my evening?
— AfroMum (@Afro_Mum) October 1, 2015