By Criss
Nairobi, Kenya – May 10, 2024
The Kenya Revenue Authority (KRA) has issued a directive to landlords across the country, urging them to adjust their rental charges in line with market dynamics. This move comes as part of KRA’s efforts to enhance revenue collection and ensure fairness in the real estate sector.
Rental Income Stagnation Raises Concerns
Despite rent appreciation over the years, some landlords have continued to report constant rental income figures. KRA has taken notice of this trend and aims to address it by encouraging landlords to reassess their rental charges. In a recent notice, the commissioner highlighted the need for accurate declarations, emphasizing that rent is an appreciating commodity influenced by economic conditions.
“We understand that rent prices fluctuate with economic cycles,” stated the KRA notice. “Landlords are encouraged to review their rental income declarations for the current month and make necessary adjustments. Previous returns can also be amended if needed.”
Affordable Housing Levy Implementation
In addition to adjusting rental charges, KRA has introduced an affordable housing levy for landlords. Property owners are now required to pay 1.5% of their gross rental income towards this levy. The directive aims to support affordable housing initiatives in Kenya.
“For clarity, the affordable housing levy will be charged at 1.5% of gross rental income,” clarified the taxman. Landlords are urged to take advantage of the tax amnesty program, which runs until June, to comply with this new requirement.
Uncertainty Surrounding KRA’s Directive
Tax expert Kipkemboi Rotuk, an advocate of the High Court of Kenya, raised concerns about the clarity of KRA’s directive. While the Affordable Housing Act provides for levying taxes on primarily employees and natural persons, the term “person” remains undefined. As a result, the directive applies broadly to all landlords, regardless of their registration status as natural or artificial persons.
“It appears that KRA may have mistakenly assumed that the affordable housing levy is equivalent to the withholding tax they collect monthly,” explained Rotuk. “However, this approach may not be suitable for taxing entire housing units, especially when some landlords own only a few units within a rental apartment block.”
As landlords grapple with these changes, KRA aims to strike a balance between revenue collection and fairness in the real estate market. The implementation of the affordable housing levy remains a topic of debate, and stakeholders continue to seek clarity on its application.
