Tax experts have poured cold water on landlords' threat to hike rent due to a housing levy that requires them to remit 1.5 per cent of gross income.
A KRA official who spoke to the Star on condition that he remains anonymous as he is not allowed to speak on behalf of the agency said that by hiking rent, landlords will be punishing their customers, while remitting more to the tax agency.
"It is counterproductive and will only hurt their businesses and their esteemed clients. Tax is not a punishment but rather a patriotic obligation to foster social and economic growth,'' she said.
She further clarified that only unemployed traders and property owners are expected to remit a percentage of their gross incomes to the housing kitty.
"Those who are in formal employment where they are paid 1.5 per cent of gross pay matched by their employees will not be affected as that will amount to double taxation,'' he said.
In an advisory dated May 6 that has since sparked ire and confusion amongst property owners and traders, the Kenya Revenue Authority (KRA) reminded business operators to remit the levy by May 9 (today).
"The Affordable Housing Levy (AHL) will be charged at the rate of 1.5 percent, including gross rental income and sales receipts (the amount chargeable to turnover tax),'' the notice reads.
Lawyers at Bowmans view the rent hiking option also as defeatist in nature.
"It doesn't make sense to hike rent in the name of punishing the government or tenants. If the rent is Sh10,000 or hiked to Sh15,000, the 1.5 per cent levy still applies.''
"The statement was taken out of context. The law is clear on who, when and how much should be paid for this particular levy. Employed business operators are already paying at their job respective stations. They only have to show proof to avoid double taxation,'' she said.
After reading KRA's notice, several landlords hinted at passing the bill to tenants, with some like James Sagini, an employee at a local insurance firm who also owns several rental units within Nairobi telling the Star that the government had left him with an option of hiking rent or simply closing shop.
"This clarification is timely. The statement was not clear and I believe several employed business operators had similar thoughts of either hiking rent or folding the business to protest double taxation,'' Sagini said.
According to the law which has been unsuccessfully contested in court, business operators with no employment record but an annual income between Sh1 million and Sh25 million are expected to pay 1.5 percent.
The same applies to property owners who earn less than Sh280,000 per month. Those who earn Sh280,000 to Sh15 million are expected to pay 7.5 per cent.
This means a landlord earning Sh1,00,000 in gross sales every month will have to pay Sh75,00 before tax.
Lawyers at Bowmans warn that those who fail to adhere will be charged a three per cent penalty per month on the unpaid amount of the Levy, which would be recoverable as a civil debt.
The purpose of the Fund is to provide funds for the development of affordable housing and associated social and physical infrastructure classified into four categories.
A social housing unit targets those whose monthly income is below Sh20,000 while an affordable housing unit is for anyone whose monthly income is between Sh20,000 and Sh149,000.
An affordable middle-class housing unit targets persons whose monthly income is over Sh149,000 while a rural affordable housing unit is for those living in any area that is not an urban area.
This clarification will perhaps help to calm business operators who had condemned the latest KRA notice, which had made several landlords threaten to pass the bill to tenants.
In November last year, the High Court declared the levy illegal but allowed the state to keep collecting deductions until January 10, 2024.
However, on January 26, 2024, the Supreme Court stopped the state from collecting the funds, terming it unconstitutional.
To comply with the High Court’s ruling on the illegality of the AHL, which was limited to salaried employees and not all workers, the Parliament amended the act to include those in the informal sector.
After passing the legal hurdle, the president signed the act into law.
According to the revenue authority, the government collected Sh26.8 billion in the six months to December 2023 despite legal challenges at the time.