, NAIROBI, Kenya, Nov 21 – Landlords will soon be legally required to furnish their tenants with their personal details, as the Kenya Revenue Authority (KRA) beefs up its efforts to ensure tax compliance in the real estate sector.
KRA Commissioner General John Njiraini said the move should help tenants provide full and accurate data to verify their landlords’ tax declarations.
“We are not asking for anything earth-shaking, just for you to share your information with the person staying in your house. It should be the normal thing because tenants give information to landlords,” he said
He added that the authority will take the proposal through the legislation process as early as June next year. Last month, the taxman made an appeal to tenants to hand over any information on their landlords as it continues to map out properties.
KRA is also looking to gain access to existing databases held by public or private institutions that have information on land and property ownership.
“KRA’s core business is tax collection and not the development and maintenance of property or other databases. Why should I spend money to develop a database that someone else already has,” Njiraini said.
According to the Kenya Economic Survey, the Real Estate sector grew by 16 percent and 17.5 percent in 2009 and 2010 respectively. However these gains have not translated to growth in revenue for the KRA from the sector.
This is in part due to property developers, in the past, seeking to shield the profits they made by erroneously treating returns as Capital Gain, a tax that was suspended in 1985.
KRA then decided to issue guidelines last year to draw the line between what it deemed as “capital gain” and “business profit” in property sale transactions.
“The key characteristics that make the distinction include frequency of transactions and the length of time a property is held prior to its disposal,” Njiraini explained.
Compliance efforts have been often frustrated by the fact that rent is paid in cash in many cases. Doubt has been cast on the third party approach KRA is using to collect data on landlords, with property stakeholders terming it mediocre.
However, the authority has defended it citing other countries that use the practice in tax administration.
KRA hopes the re-introduction of universal filing of income tax returns will make it necessary for all tenants to supply information regarding their landlords, including amounts they pay.
The taxman has already configured a new electronic tax declaration system to capture such data from tenants and pool it to provide a comprehensive profile of landlords’ income from varied tenant declarations.