The taxman plans to have tenants pay part of the rent directly to his accounts. The Kenya Revenue Authority (KRA) says tenants will be expected to make simultaneous bank deposits, one to the landlord and then to KRA.
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Landlords will be required to show compliance by producing the bank deposit slips.
The proposal seeks to simplify payment of rental income tax by landlords and will also introduce a flat rate of taxation on income received from tenants.
It will not take into account any costs or profitability of the buildings, but will be similar to a turnover tax on SMEs, which is currently set at a flat rate of three per cent. New legislation will be done to set the flat rate.
KRA commissioner-general John Njiraini said his institution had realised the biggest problem in paying rental income was the complexities associated with making calculations on costs of maintaining or putting up a building.
“Our objective is to make the payment of taxes simple. When we tried to find out why many landlords were not paying rental income tax, we found out that they didn’t even know where to start,” said Mr Njiraini.
He said many landlords had no records of the costs involved in maintaining the building and could not make calculations involved. As a result, they could not determine the amount of tax due from them.
The KRA has not been able to realise the targeted rental income tax with only Sh3 billion having been collected in the fiscal year 2013/14.
READ: KRA moves to enforce payment of rental income tax
Many landlords also do not pay value added tax (VAT) on commercial rental properties, yet they may exceed a turnover of Sh5 million that is the minimum for payment of the tax. VAT is supposed to be charged on tenants, including for costs that the landlord may pass on to them such as renovations or service charge.
Currently, landlords are supposed to maintain details on the rental properties including the land reference number, gross rent received and all expenses incurred per property.
Landlords have difficulty determining what is to be included when calculating costs incurred on their property, as some expenses are legally allowed while others are not.
The allowable expenses include those incurred wholly and exclusively in the production of the rental income such as mortgages, land acquisition, professional fees, cost of building materials, labour and advertising.
The costs that are not allowed include depreciation, costs of maintaining the owner and family as well as hiring of non-commercial vehicles.
Coutesy of Businessdaily.com