AN EYE IN THE MIDDLE OF THE STORM FOR RENTAL INCOME EARNERS IN KENYA
Amnesty period is defined as a period where general pardon for offenses is
issued, forgetting or overlooking past offenses, sometimes in an attempt to
bring about reconciliation. The Kenya Revenue Authority (“KRA”) has issued
an amnesty to all landlords who will voluntarily comply with the conditions
granted during this amnesty period.
KRA has in the past couple of years been undergoing internal restructuring in
an attempt to widen the tax net by adopting a more taxpayer focused approach.
This is commendable as the general view of KRA under previous regimes was
that of a “government hitman with a license to collect at any cost”.
In an attempt to reconcile with the public and in line with its rebranding as the
people’s servant/agent, KRA have granted a tax amnesty window specifically
targeting landlords with whom it has had an enduring tug of war for the longest
time. This provision was introduced by way of the Finance Bill 2015, now
Finance Act 2015, as an insertion of a new Section 123C to the Income Tax Act
which came into effect on 1st January 2016. This is aimed at enhancing tax
compliance levels within the real estate sector.
The Act provides for amnesty for persons who shall willingly declare their
2014 and 2015 rent, pay out the implied principal tax and file returns (original or
amended) between 1st July 2015 and 30th June 2016. For the two years (2014
and 2015) penalties and interest shall be waived, as well as the principal,
interest and penalties for 2013 and prior years.
It is worth noting that the provisions of Section 123C are wide and do not limit
the scope of the amnesty save for the instances detailed under Section 123C
(2) relating to issued assessments and on-going audits or investigations. As
such, individuals, any body of persons be they incorporated or unincorporated,
resident or non-resident, can take advantage of the amnesty. Taxpayers are
also at liberty to apply the amnesty to rental income generated from residential,
retail or commercial owned property.
In addition to the above, Section 123C (3) further states “where a person has
no documentation to support expenditure, such person shall be allowed a
deduction of forty percent of the gross rent, premium or similar
consideration for the use or occupation of immovable property”. This
provision will go a long way in reducing the amount of the principal to be paid
where a particular individual does not have proper documents in support of the
expenses incurred. However, if one has all the proper documents they will be
allowed full deductions.
This is a golden opportunity for persons owning rental property who would like
to become compliant. Just like the eye in the middle of a storm it presents a
period of calmness where taxpayers can regroup and re-direct their energies
before the on-coming storm.
Taxpayers who comply will be issued with an Amnesty Certificate which
ensures that such back periods will not be re-opened. However, once this
amnesty period expires, those who fail to comply will be exposed to back
periods being assessed. Such taxpayers will unfortunately be caught up in the
KRA storm that is brewing, as the KRA will be aggressively going after such
persons in an attempt to collect more revenues in line with the country’s
collection target.
This amnesty will last until 30th June 2016, therefore giving taxpayers ample
time to organize themselves. We would urge all landlords who are currently
non-compliant to take full advantage of this amnesty period by remitting the
2014 and 2015 principal tax only as the penalties and interest are currently
waived
Copyright © 2015 Viva Africa Consulting LLP, All rights reserved.
For any further information regarding Residential Rental Tax, please contact Mr. Lucas Kihara on
[email protected] or contact us on [email protected]
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