The Consumer Federation of Kenya (COFED), Central Organization of Trade Unions (COTU) and Institute of Surveyors of Kenya (ISK) are seeking to stop Kenya Revenue Authority (KRA) from collecting property taxes from landlords as it had been stated in the Budget Speech read by Njeru Githau last week.
Francis Atwoli, COTU secretary general stated that taxing landlords would amount to double taxation as they are already paying land rates to local authorities.
We embarked to find KRA’s legality in collecting property taxes from landlords by seeking legal advice from CG Mbugua, an Associate with Lex Group Africa.
CG Mbugua states that like any other Kenyan, landlords are subjected to income tax as they get revenue from the houses they rent out. Income tax returns filed annually apply to all taxable persons, including landlords. As of last year the government exempted everyone who earns a salary from filing tax returns, but if one has other sources of income, they are still expected to declare how much they make from these sources. Rent is a form of income to landlords and thus should be taxed. Based on this, landlords are obligated by law to fill the tax self-assessment form and indicate how much they make from rent. Income tax rates vary from 15% to 30%; income above KES 40,000 has a fixed tax of 30%. It’s unlikely that landlords, especially those targeted by KRA, earn less than KES 40,000 from rent, meaning it’s logical to assume that their rent income attracts 30% income tax.
Based on the above, rent income like any other source of income attracts income tax meaning KRA is legally mandated to collect property taxes from landlords.
What does The Income Tax Act say about taxing landlords?
Section 3(1) of the act states that: In accordance with this Act, a tax to be known as income tax shall be charged for each year of income upon all the income of a person, whether resident or nonresident, which was accrued in or was derived from Kenya. Simply put, this means any income one has will annually be subjected to income tax.
Section 3(2)(a)(iii) defines income as gains or profits which includes royalties, rent, premium or similar consideration received for the use or occupation of property.
Section 10 of the act further defines income by stating that: For the purpose of this act, where a resident person or a person having a permanent establishment in Kenya makes payment to any other person in respect of the use of their property in Kenya, the payment shall be deemed to be income derived from Kenya.
From the above, KRA is indeed legally mandated to collect rent taxes from landlords, meaning the Consumer Federation of Kenya (COFED), Central Organization of Trade Unions (COTU) and Institute of Surveyors of Kenya (ISK) have no mandate to stop Kenya Revenue Authority (KRA) from collecting property taxes from landlords