KRA rental income tax amnesty explained

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The rental tax amnesty came about when KRA realized that Landlords were not willing to comply with rental income tax due to the fear of being charged huge back taxes after years of non-compliance. The landlords appealed to the government to grant them an amnesty on the back taxes and also simplify the tax in a bid to reduce the cost of compliance. The government heeded to their pleas and granted an amnesty as from 1st July 2015 to 30th June 2016, the tax rate was also reduced to 10% of gross rent for landlords earning 10 million and below effective 1st January 2016.

Those eligible for the amnesty include;

Individual Landlords

These are individuals who earn income from letting out their property and who shall voluntarily disclose undeclared rental income for the year 2014 and 2015 and submit returns. They shall be given 100% amnesty for interest and penalties upon full payment of the principal tax due. They shall also be granted 100% amnesty for any principal tax, interest, and penalties that may have fallen due for the year 2013 and prior. So no back taxes whatsoever.

Apparently tenants who sublet their servant’s quarters are also supposed to pay the rental income tax.

Deceased Landlords

These are landlords who owned rental property before their demise. Estate administrators or the legal representatives are allowed to account for the tax on the rental income on behalf of the deceased and as such can apply for the amnesty.

Kenyans living in the diaspora

Any Kenyan living out of the country but has property in Kenya is required to pay tax for the rental income earned. As such they are also eligible for the amnesty provided they voluntarily declare, submit returns and pay principal tax due on the rental income for the years 2014 and 2015.

However if you an individual but your property is registered under a company, you will not be eligible for the amnesty as it is only open to individuals. You are also ineligible if KRA has already given you a notice to pay the taxes.

For those who will heed the call and apply for the amnesty, there is a whole range of benefits which will accrue. These include; 100% amnesty on principal tax for 2013 and prior as such you only pay the principal tax for 2014 and 2015 with a 100% waiver on interest and penalties, a simplified and reduced tax rate of 10% of gross rental income, once you are tax compliant you will be issued with a Tax Compliance Certificate that ensures that you will not be subjected to further compliance checks for the years 2013 and prior, 2014 and 2015, where expenditure records cannot be supported or are unavailable landlords will enjoy a deduction of 40% of the gross rental income as expenditure and last but not least in case you are unable to pay the tax in lump sum you will be allowed to pay in instalments till 2016.

In the event a landlord fails to fully disclose tax due or simply evades paying the tax and KRA has evidence of such, the law empowers them to take punitive measure on the landlord which include; determining tax due for 7 years, issuing agency notices to banks and 3rd parties to recover tax (basically the rent collected from your property is channeled to KRA by your tenants and bank), Placing of caveats and charges at the Ministry of Lands which means you cannot sell your property and Auctioning your property – Sec 103 of Income Tax Act.

In case you thought that you can hide from the tax man, well think twice. They can be able to get your financial data from banks, money transfer services like m-pesa and even tell which property you have bought and where you live through collaboration with other government bodies like Ministry of Lands, Kenya Power. It is basically easier and cheaper to comply with the tax than default/evade.

Landlords can download the tax amnesty application forms here.

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