KRA headquarters Times Tower in Nairobi. FILE PHOTO | NMG
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.
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