One of the highlights from yesterday’s budget speech is treasury’s introduction of new measures to rope landlords into the tax bracket.

This isn’t the first time such a move has been made. In 2005, Kenya Revenue Authority (KRA) announced plans to use bank accounts to start taxing landlords but the move failed after banks refused to cooperate. Since then, many landlords have successfully evaded the grip of the taxman.

Finance minister Njeru Githae, in his budget speech, said KRA will implement a comprehensive strategy to hold landlords and tenants accountable. On 26^th April 2012, KRA issued a Tax Compliance notice to landlords and players in real estate sector, advising them to come forward and voluntarily make their correct declarations and pay the relevant taxes. As per the notice, landlords not registered as taxpayers were advised to do so before 31^st May 2012.

KRA has in the recent past vowed to pursue evasive property owners. Landlords who have not been remitting rental income tax stand to lose up to 30 per cent of their yearly income plus possibility of penalties and interest.

Landlords with rental property in the middle and low income areas are at the highest risk of bearing the tax man’s wrath. Most of them are paid in cash, making it difficult to trace their tax compliance.

KRA is in the process of registering all properties in major towns. So far, it has identified properties that are notorious for not remitting rental income tax.

Considering the high mortgage interest rates most landlords are paying, it’s the tenants who will face tough times as unscrupulous landlords will most probably pass on this additional expense to their tenants.