KRA targets real estate firm directors in Sh20bn tax probe

KRA headquarters Times Tower in Nairobi. FILE PHOTO | NMG 

In Summary

• Among the firms on the KRA radar are Banda Homes, Greenspan, Superior Homes Kenya and Nexgen Office Suites, Muga Developers and Chigwell.
• Realtors have frequently blamed poor sales for the underperformance of the segment that has lately been flagged for increased loans defaults that has seen many half-done houses being auctioned.

By PAUL LETIWA

The Kenya Revenue Authority (KRA) says it is poring through bank records, tax returns and other transaction details of more than 30 real estate companies in effort to recover up to Sh20 billion.

Among the firms on the KRA radar are Banda Homes, Greenspan, Superior Homes Kenya and Nexgen Office Suites, Muga Developers and Chigwell.

Concerns that developers are cheating the tax system have also been raised by the Lands ministry, which processes all transfers of land and buildings.

Taxation of capital gains has however remained a sticky issue even as the government moved to more than double the levy on gains from sale of property to 12.5 percent this financial year, up from five percent.

The taxman says holding individual directors accountable will facilitate the collection of taxes on all gains made in constructing and selling of homes and commercial buildings that are currently being lost in fraudulent schemes.

“We have unearthed elaborate schemes involving the formation of separate companies to develop homes and use of different ones to sell the same as a means of erasing the traceability of earnings from the business,” said Mr Edward Mbugua, a deputy commissioner in the department of domestic taxes.

Realtors have frequently blamed poor sales for the underperformance of the segment that has lately been flagged for increased loans defaults that has seen many half-done houses being auctioned.

Mr Mbugua said the use of multiple entities to transact real estate businesses is helping tax cheats to condense the magnitude of the housing projects, depress profit margins and the resultant tax liability.

He cited investigation from the KRA officials showing that most off-plan housing projects fold up phony companies as soon as the developers are done with construction when the properties are transferred to different entities to complicate the tax recovery process.

Landlords are also said to reduce number of units or declare those being occupied as vacant so as to avoid paying monthly rental income. Mr Mbugua said that the KRA officers were mapping houses and have acquired data bases to link from the ministry of lands, Kenya power and various water utilities.

“There is also non-payment of taxes on development of huge real estate projects where the government is denied three percent withholding tax on contracts by the contractors and other real estate professionals. Most contracts also fail to declare income earned from real estate development in the annual tax return,” he added.