Inside KRA’s war on dodgy landlords
You could almost cut through the thick air hovering around Wilson Airport’s KRA Medium and Small Taxpayer office.
Riding on a wave of impunity, many chose to ignore the initial demands but now the noose has tightened. On the day we visited, 72 of them had been processed by the no-nonsense tax officers who confessed to us that they had been processing at least 500 landlords a day.“We were not aware there had been passed such a law. We were just ambushed by letters demanding that we clear huge arrears. Soon after the initial notice letters, they started threatening us,” a disgruntled landlord told the Sunday Standard.His eyes glued to the letter, he bemoaned over the Sh1.35 million bill he had been slapped with, accrued in penalties and interest from a principal of Sh263,340.
Working backwards from the 10 percent tax demand, you could tell that the landlord had been dodging Sh21,945 a month, translating to a monthly rental income of Sh219,450. But all that’s paper calculations.On the ground, the man told us, things are different. His 18 units are semi-permanent and he charges each unit Sh1,000. At his exhortation, the Sh1.3 million was whittled down to Sh38,000. He could now breathe.
Another landlord who owns units in one of the sprawling slums in the city was brandishing a Sh700,000 bill. Dazed, he rushed to this centre where the value was scaled down to Sh172,000 and an agreement to pay a monthly installment of Sh6,500 struck.He credits KRA for being willing to negotiate the terms of payment with the affected landlords, which has seen him pay in affordable instalments since October 2019.Though he is paining and he would prefer to reach a truce that sees him pay even less, or have the interests and penalties scrapped off, he is happy he has been allowed time to settle his bill. A demand letter, seen by The Sunday Standard, gives the defaulters a 14-day ultimatum.“You are required to pay the tax due within 14 days from the date of this letter failure to which we shall initiate necessary enforcement measures in line with the Tax Procedure Act 2015,” it says.If the landlords do not honour payment of their dues within 30 days of the notice, the revenue recovery department swings into action. Agency notices are dispatched and, in some instances, distress orders made, which includes sale of the movable property of a taxpayer.
The situation at Wilson, we are told, is replicated across all the DTD (Domestic Tax Department) offices around the country. The siege for non-compliant landlords is taking shape.KRA Deputy Commissioner for Policy and Tax Advisory Division, Caxton Ngeywo, says that while the taxman should be collecting 28 per cent of Gross Domestic product (GDP), only collects 19.5 per cent. As KRA fights to cover the deficit, residential house owners are seen as a target, with the tremendous growth of the real estate sector in the recent past.Small and Medium Enterprises (SMEs) are next, with the introduction of a turnover tax and an M-Service mobile application to be launched by March 2. The surprise notice is paying returns, KRA feels. Previously, landlords had turned blind eye to KRA demands but now they are being pulled out one by one through a combination of strategies which include among others, study of electricity connections.The target, says Ngeywo, was to register 22,000 landlords in the Monthly Rental Income (MRI) program in the financial year 2019/2020. So far, they have managed to bring on board 15, 000. It is a leap in the right direction, he says.Before that, KRA depended on voluntary disclosures and payments from rental income earners. But, as would be expected, KRA noted issues of low compliance. Four years later, after noncompliance by the landlords persisted, KRA has decided to crack the whip.
“We have noted that many property owners are not disclosing full and correct information regarding income received from their rental properties to avoid recruitment and payment of rental income tax,” lamented the tax collector in a public notice of November 2019.KRA intends to collect Sh25 billion in tax base expansion by end of the current financial year. And while the chase for the owed monies intensifies, landlords insist that they are not at home with the ambushes, adamant that KRA did not reach out to them in the right manner and at the appropriate time.Ngeywo denies that KRA is using unorthodox means to net in the landlords. He say the agency operates within its mandate while getting data that can lead it to the taxpayers. “We do data-driven recruitment of taxpayers into our system. People leave digital footprints everywhere when they transact with organisations and we can pursue them using data collected from third parties.” he says.“We get the information through electricity metre numbers and bills, approvals obtained for construction and also from water connectivity statistics. Government agencies are not barred by law from sharing citizens’ information for efficient service delivery,” he says.The tax authority then uses market rates to determine an arbitrary value of rent that such landlords are likely to receive. This explains why most of the figures that the landlords are presented with are exaggerated.But Ngeywo says the taxman is already willing to waive penalties and interests in the case of the culprit putting up a plausible defense. In addition, where the financial position of the landlord is unstable, they are allowed to pay in instalments.This is to compel the landlords who have not been caught up by the taxman’s net to come out and make declarations when the confession booth is open.The tug-of-war is bound to go on as the two parties try to strike a truce. KRA hopes the landlords will blink first and pay their dues, interests and penalties included. The landlords hope the penalties they face will be waived. A win-win situation for both parties needs to be settled upon before the tussle spills into an ugly fight.