The Kenya Revenue Authority (KRA) has raised queries with landlords whose rental income has remained unchanged for years, signalling a push to increase revenue from rent.
The authority has sent notices to landlords after noticing unchanged taxes for a significant number of property owners, suggesting either their rents have remained abnormally stagnant or they are tax cheats.
KRA has asked landlords to ensure their rents are in line with market changes, which could see an increase in rent payments.
“The commissioner has noted your rental income has been a constant figure or with a slight decline for the periods filed,” said KRA in one of the notices sent in April and seen by the Nation. “We understand rent is an appreciating commodity with economic times and we expect your declarations for the current month will reflect that and if any previous returns declarations can be amended as need be. Filing of Nil or decline in rental income is highly discouraged.”
While the move is aimed at smoking out landlords who have under-declared their rental income, it is also likely to hurt property owners grappling with high vacancies and price sensitive tenants that quickly move houses when rents are hiked.
A rent increase could also hurt workers who have seen their pay fail to match inflation and suffered an increase in taxes, including housing levy.
Property owners were expected from January to pay monthly rental income tax at the rate of 7.5 per cent of gross rent collected from tenants. This tax is applicable to those earning an annual rental income of between Sh280,000 and Sh15 million. Property owners are not allowed to deduct expenses, losses or capital deductions.
Previously, landlords were paying 10 per cent tax on rent after deducting expenses like mortgages and renovations.
One of the landlords targeted by the notice has flats in Mlolongo, Machakos.
“The rental income goes up when I get a new tenant, not when they have been there for a long time. Getting a constant tenant is not easy so I do not raise their rent,” said the landlord on condition of anonymity for fear of reprisals from the KRA.
“In the estate where I have my flats, there is a glut so rent is a constant figure. If you are the only landlord raising rent you will automatically transfer your tenants to other properties,” he added.
An index by Hass Consult shows that rents have increased by more than four times since 2001, but the pace of rental growth has eased in recent years.
An increase or decrease in rental income, either from residential or commercial properties, is driven by factors such as vacancies, type of tenancy and the quality of property, according to Johnson Denge, a real estate expert. He said it is very hard to increase rent for residential houses because most of them don’t have binding tenancy agreements.
“What happens is that rental in a residential area increases when you have a vacancy,” said Mr Denge.
The government has struggled to hit its target for rental income collection and has been recruiting more property agents after a study revealed a shortfall of projections by Sh27 billion in 2022. In the Finance Act 2023, it introduced a provision for appointment of rental income tax agents who will be required to collect and remit the tax to KRA.
