While releasing its two-year corporate plan in January this year, KRA
said it would use utility bills data and information from third parties
to recruit more landlords into the tax base with a target of netting at
least 22,000 landlords each year. PHOTO | DENNIS ONSONGO | NMG
The Kenya Revenue Authority (KRA) has now trained its sights on
property owners by using Kenya Power meter registrations to identify
landlords and slap huge tax demands on defaulters.
Landlords
have in recent weeks been receiving huge, backdated tax demands from
KRA based on estimates calculated from electricity bills that are linked
to their tenants.
Taxpayers are required to disclose
details of their landlords while filing their annual returns, providing
the taxman with a treasure-trove of information that is now being used
to net evaders.
KRA is singling out individuals with
multiple electricity meters registered under their names and estimating
taxes due during the years when the meters have been active.
“Records
held in this office indicate that you own rental property and you have
failed to declare the rental income from your property as required of
you under the law. Please note that the amounts assessed are due and
payable immediately.
“If you fail to comply with this
notice within a period of 30 days from the date of this notice, tax
recovery measures may be instituted without any further reference to
you,” reads one of the letters in which KRA is demanding Ksh6.4 million
($63,000) from a landlord.
Power
KRA is by law empowered
to access electronic data on taxpayers without seeking a court order.
The taxman is using meter locations to tell where the property is
situated while the level of electricity consumption is used to estimate
the size of the rental house.
The neighbourhood and consumption amount is then used to estimate rental income and hence the tax payable.
The defaulters are then effectively roped into the tax base.
Letters seen by the Business Daily
also show that KRA is penalising the landlords for both late filing and
late payment plus interest on the amount due, payable within one month.
Other landlords who spoke to the Business Daily
criticised the approach, which they said had become a costly affair as
they engage lawyers and tax experts to negotiate the hefty tax demands
and clear their records.
“It is a very arbitrary way of
enforcing compliance, which ignores various dynamics of rental income
business. It could be shared ownership, a family building or even built
using loans.
“Just making assumptions that because my
tenants consume so much power so it means I earn so much rent is really
unrealistic,” said a landlord who owns rental apartments on Nairobi’s
Ngong Road while requesting anonymity for fear of victimisation by the
taxman.
KRA had not responded to our queries on the issue by the time of going to press.
While
releasing its two-year corporate plan in January this year, KRA said it
would use utility bills data and information from third parties to
recruit more landlords into the tax base with a target of netting at
least 22,000 landlords each year.
The tax man had
recruited 58,934 landlords already as at June 2018, narrowly missing its
target of 60,000, representing 98 percent performance.
“Access
to third-party data from banks and utility providers was instrumental
in identification of the landlords,” KRA noted in the strategic plan
outline.
The taxman has also planned to carry out a
countrywide property mapping that will tell locations, size and owners
of properties to start collecting rental income.
Tax
experts say the plan by KRA to expand its tax base is sound, but the
method it is using could create even more resistance from landlords who
are quickly finding other ways to evade the tax.
Tracking exercise
Deloitte
East Africa Tax Partner Fred Omondi said the tracking exercise has been
ongoing for a while. He said the taxman may have found it a convenient
way to smoke out landlords after it realised that the planned property
mapping was an uphill task.
“Using electricity meters
to estimate tax may be unorthodox, but it is within their right to make
tax estimates and try to recover as much as possible. The best approach
would be to conduct the property mapping they had planned more than
three years ago, but that would also require more work and more
resources,” said Mr Omondi.
His Grant Thorton
counterpart, Samuel Mwaura, said the move was likely to cause several
disputes owing to its arbitrary application and encourage informal ways
of accessing utilities like water and power to avoid the risk of having
personal data shared with KRA.
The taxman is also said
to be sending interns to property locations and gathering information
from caretakers who innocently reveal ownership, rental rates and number
of units which are then used to make the tax demands.
The
taxman could also access banking patterns suggestive of rental income
from landlords particularly those who use agents since the Central Bank
of Kenya requires banks and other financial services providers to
collect Personal Identification Number (PIN) certificates of new clients
as part of the Know Your Customer (KYC) checklist.
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