How the tax amnesty in rental income will work

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Landlords who are individuals and who have not been accounting for tax on the rental income earned from their properties have every reason to breathe a sigh of relief.

In his Budget Statement for the fiscal year 2015/2016 presented to the National Assembly on 11 June 2015, Treasury secretary Henry Rotich introduced a tax amnesty for landlords who have not fully declared rent or are outside the tax net.

A tax amnesty can be generally described as a limited time opportunity for a specified group of taxpayers to pay a defined amount in exchange for forgiveness of a tax liability (including interest and penalties) relating to a previous tax period or periods without fear of any adverse repercussions.

The Finance Bill, 2015, which provides the legislative authority for the tax amnesty details how it is intended to work.

According to the Finance Bill, 2015, the Kenya Revenue Authority (KRA) shall, with effect from July 1,2015, refrain from doing two things.

Firstly, it shall refrain from assessing or recovering taxes, penalties or interest thereon in respect of years of income 2013 and prior.

What this means is that provided the affected landlords comply with the requirements of the amnesty their tax liabilities including penalties and interest thereon for years of income 2013 and prior will be forgiven.

Secondly, the KRA shall refrain from assessing or recovering penalties and interest due on the principal tax for years of income 2014 and 2015.

The effect of this is that for years of income 2014 and 2015 the landlords taking advantage of the tax amnesty will be required to pay the principal tax. However, the penalties and interest that may be due on the principal tax will not be payable.

To benefit from the tax amnesty the landlords have to submit their self-assessment returns or amended self-assessment returns for 2014 and 2015 and pay the tax due on or before June 30, 2016.

However, the tax amnesty shall not apply under certain circumstances. It will not apply with regard to any tax where the landlord who should have paid the tax has been assessed in respect of the tax or any matter relating to the tax.

This condition would appear to apply in situations where for instance the landlord has already undergone a KRA audit following which he has been issued with an assessment demanding tax on his rental income.

Such landlord will not be eligible for the tax amnesty. The tax amnesty will also not apply in circumstances where the person who should have paid the tax is under audit or investigation in respect of the undisclosed income or any matter relating to the undisclosed income.

It is to be hoped that the landlords who are individuals and who have not been accounting for tax on rental income they have been earning will take advantage of the amnesty and update their tax positions.

The author is a tax director at Deloitte EA.