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Impact of 30% rental income tax on housing development in Kenya
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Bachuma Gate
#1 Posted : Wednesday, June 13, 2012 9:17:51 PM
Rank: Member

Joined: 3/26/2012
Posts: 280
Time will tell whether this will have a negative impact on housing development in Kenya. I personally think it will.

1. A good number of investors in this sector have bought property to rent. Imagine buying 2-2 bed flats at 9m. You get rent of 15K*2=30K less tax @30%. Is it worth investing 9million to end up with 20K per month ?. I see people rather putting their monies in other investment eg T/Bills etc where even with a rate of 9%, you are likely to end up with more than 50k pm.

2. People who still want to invest in properties will prefer areas where it is difficult for the tax man to touch them. So I am seeing more of mlolongo type of houses more than the elegant apartments coming up in Eastlands.

3. That rate of 30% is high. It should be graduated like PAYE but at lower rates to encouraged investment in this sector or even zoned. The pricing of flats/houses in Lavi, Kile, Runda is such that the investors may be able to pay tax but with rents of 5-28K in Eastlands, Ronga, Kitengela, Busia, Nyeri, Nakuru and other kenyan towns, I foresee alot of issues.


4. If you borrow to buy a flat and then rent which majority do. Where does this leave you with the tax thing. The INTEREST that you pay the banks on 4.6m is well over 60K pm @20% interest. Yet your rental income is 15-18k. It is not much different when you borrow to build flat(s).

5. Most likely landlords will pass this tax to tenants. If you stay in middle class areas eg Langata, South B, Jamhuri, prepare to consider moving to Ronga, Kasarani, Eastlands, Kite etc


DOH
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Aguytrying
#2 Posted : Thursday, June 14, 2012 10:59:10 AM
Rank: Elder

Joined: 7/11/2010
Posts: 5,040
Bachuma Gate wrote:
Time will tell whether this will have a negative impact on housing development in Kenya. I personally think it will.

1. A good number of investors in this sector have bought property to rent. Imagine buying 2-2 bed flats at 9m. You get rent of 15K*2=30K less tax @30%. Is it worth investing 9million to end up with 20K per month ?. I see people rather putting their monies in other investment eg T/Bills etc where even with a rate of 9%, you are likely to end up with more than 50k pm.

2. People who still want to invest in properties will prefer areas where it is difficult for the tax man to touch them. So I am seeing more of mlolongo type of houses more than the elegant apartments coming up in Eastlands.

3. That rate of 30% is high. It should be graduated like PAYE but at lower rates to encouraged investment in this sector or even zoned. The pricing of flats/houses in Lavi, Kile, Runda is such that the investors may be able to pay tax but with rents of 5-28K in Eastlands, Ronga, Kitengela, Busia, Nyeri, Nakuru and other kenyan towns, I foresee alot of issues.


4. If you borrow to buy a flat and then rent which majority do. Where does this leave you with the tax thing. The INTEREST that you pay the banks on 4.6m is well over 60K pm @20% interest. Yet your rental income is 15-18k. It is not much different when you borrow to build flat(s).

5. Most likely landlords will pass this tax to tenants. If you stay in middle class areas eg Langata, South B, Jamhuri, prepare to consider moving to Ronga, Kasarani, Eastlands, Kite etc




Has this been effected?
This will have adverse consequences.
The investor's chief problem - and even his worst enemy - is likely to be himself
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kyt
#3 Posted : Thursday, June 14, 2012 11:58:55 AM
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Joined: 11/7/2007
Posts: 2,182
lets wait wether the finance guy will touch it, fingers crossed
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Marty
#4 Posted : Thursday, June 14, 2012 12:13:19 PM
Rank: Veteran

Joined: 3/31/2008
Posts: 761
Location: Nairobi
kyt wrote:
lets wait wether the finance guy will touch it, fingers crossed


The easiest and the most practical answer to landlords is to increase rent.
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hisah
#5 Posted : Thursday, June 14, 2012 12:19:23 PM
Rank: Chief

Joined: 8/4/2010
Posts: 8,977
Marty wrote:
kyt wrote:
lets wait wether the finance guy will touch it, fingers crossed


The easiest and the most practical answer to landlords is to increase rent.

Increasing rent pay with stagnant wages facing high inflation as well as interest rates and an econ slowdown will be a tough call to the tenant. For a while the landlords will have to absorb that tax if it happens.
$15/barrel oil... The commodities lehman moment arrives as well as Sovereign debt volcano!
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Digitali
#6 Posted : Thursday, June 14, 2012 1:44:01 PM
Rank: New-farer

Joined: 1/28/2010
Posts: 81
Marty wrote:
kyt wrote:
lets wait wether the finance guy will touch it, fingers crossed


The easiest and the most practical answer to landlords is to increase rent.


Rental income has always been taxable under the income tax act however many people with rental income have not been declaring this income to KRA. on the other hand KRA has not been aggressively pursuing people with rental income probably because they lacked a mechanism of identifying and following the defaulters! The good news to KRA and bad news to defaulters is that technology has come to the aid of KRA i.e use of GIS(Geographic information system) in zeroing in on all the landlords.

The truth is that this will certainly have a negative impact on the real estate industry and bearing in mind most of the people are tenants, the real property investors will certainly have to look at alternative investments with higher returns if passing on of the tax liability to the tenants is not possible!
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Ali Baba
#7 Posted : Thursday, June 14, 2012 1:49:46 PM
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Joined: 8/29/2008
Posts: 573
DIGITALI:what you are saying is not true.Even those other investments which landlords might invest in are still taxable.So,where is the difference??That argument does not hold water.No one stops investing because of taxes.Taxes and death are two things we don't like...but we must deal with them.Lie to non investors.....
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ralp_mutu
#8 Posted : Thursday, June 14, 2012 2:08:33 PM
Rank: Member

Joined: 3/26/2012
Posts: 232
Location: Nairobi
Digitali wrote:
Marty wrote:
kyt wrote:
lets wait wether the finance guy will touch it, fingers crossed


The easiest and the most practical answer to landlords is to increase rent.


Rental income has always been taxable under the income tax act however many people with rental income have not been declaring this income to KRA. on the other hand KRA has not been aggressively pursuing people with rental income probably because they lacked a mechanism of identifying and following the defaulters! The good news to KRA and bad news to defaulters is that technology has come to the aid of KRA i.e use of GIS(Geographic information system) in zeroing in on all the landlords.

The truth is that this will certainly have a negative impact on the real estate industry and bearing in mind most of the people are tenants, the real property investors will certainly have to look at alternative investments with higher returns if passing on of the tax liability to the tenants is not possible!


I concur with you..

Rental income has always been taxable under Section 15 (i) of the Income Tax Act unless it changes today. Njiraini is just trying to reach YOU defaulters and with the ambitious 1.4T budget he will surely reach you
My folks told me that my very first word was 'billionaire'
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Ali Baba
#9 Posted : Thursday, June 14, 2012 2:24:10 PM
Rank: Member

Joined: 8/29/2008
Posts: 573
Increasing rent is not a solution as such.KRA will still tax the increase,hence the landlord's taxable income will go up.Now,you whiners pay tax!! That's the only way out.personally,I pay more than sh 500,000 a year in taxes.Let's share this burden together!!!!
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Bachuma Gate
#10 Posted : Thursday, June 14, 2012 3:24:30 PM
Rank: Member

Joined: 3/26/2012
Posts: 280
Ali Baba - My topic is not about landlords not paying the tax. It about the impact on housing development. It will help if we discuss on that line.
DOH
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