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How Government intends to kill the construction industry
Rank: Elder Joined: 2/27/2007 Posts: 2,768
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How Government intends to kill the construction industry
The landlords are not just running away from the tax man but to a larger extent, protecting their real business... The link: http://www.thepeople.co....-be-evading-the-taxman/
...besides, the presence of a safe alone does not signify that there is money inside...
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Rank: Chief Joined: 1/3/2007 Posts: 18,126 Location: Nairobi
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GoK is not trying to kill the construction industry but the construction industry is notorious for undeclared income. The laborers who get paid in cash [no PAYE], materials [stones, kokoto] bought with cash [no receipts], etc Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Elder Joined: 7/22/2009 Posts: 7,460
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The person who came up with this 30% rate is a dimwit. Pure idiot!!!! There is no way I will save up, buy a plot. Save up some more and build a flat and then you show up the first month claiming a third of the rent from that day henceforth totally ignoring all the money I have sunk into the project as if the rent collected is net profit!!! It will take me years [double figure] to break even and all along you are chewing a third of the rent!? And to make matters worse, the money I was saving to buy the plot and build you had already chewed a third at source!!! What the hell!??? 10% withholding tax, maybe. 30% on gross never. And before people start screaming about the allowed deductions, they are negligible - salary for the caretaker, watchman etc. Bure kabisa!!! I know and appreciate the fact that the government has to collect taxes to provide services but I support the can't pay, won't pay attitude till the government comes to it's senses and revises the rates to a sensible, logical and fair rate. Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Member Joined: 8/17/2011 Posts: 207 Location: humu humu
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MaichBlack wrote:The person who came up with this 30% rate is a dimwit. Pure idiot!!!! There is no way I will save up, buy a plot. Save up some more and build a flat and then you show up the first month claiming a third of the rent from that day henceforth totally ignoring all the money I have sunk into the project as if the rent collected is net profit!!! It will take me years [double figure] to break even and all along you are chewing a third of the rent!?
And to make matters worse, the money I was saving to buy the plot and build you had already chewed a third at source!!! What the hell!???
10% withholding tax, maybe. 30% on gross never.
And before people start screaming about the allowed deductions, they are negligible - salary for the caretaker, watchman etc. Bure kabisa!!!
I know and appreciate the fact that the government has to collect taxes to provide services but I support the can't pay, won't pay attitude till the government comes to it's senses and revises the rates to a sensible, logical and fair rate. 30% is too much!lets see parliament response..
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Rank: Elder Joined: 4/30/2008 Posts: 6,029
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I wonder why people should bother with such things like taxes which can be sorted out by giving chai to the right people at KRA.Even if you pay the money will be lost through corruption.
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Rank: Elder Joined: 4/22/2010 Posts: 11,522 Location: Nairobi
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kaifastus wrote:MaichBlack wrote:The person who came up with this 30% rate is a dimwit. Pure idiot!!!! There is no way I will save up, buy a plot. Save up some more and build a flat and then you show up the first month claiming a third of the rent from that day henceforth totally ignoring all the money I have sunk into the project as if the rent collected is net profit!!! It will take me years [double figure] to break even and all along you are chewing a third of the rent!?
And to make matters worse, the money I was saving to buy the plot and build you had already chewed a third at source!!! What the hell!???
10% withholding tax, maybe. 30% on gross never.
And before people start screaming about the allowed deductions, they are negligible - salary for the caretaker, watchman etc. Bure kabisa!!!
I know and appreciate the fact that the government has to collect taxes to provide services but I support the can't pay, won't pay attitude till the government comes to it's senses and revises the rates to a sensible, logical and fair rate. 30% is too much!lets see parliament response.. what is the biggest problem here?Is the rate too high or is it the pain that you,ll chuck the 30% and it will end up in someones backpocket at the end of the day as @Mawinder has rightly put it... possunt quia posse videntur
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Rank: Elder Joined: 7/22/2009 Posts: 7,460
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maka wrote:kaifastus wrote:MaichBlack wrote:The person who came up with this 30% rate is a dimwit. Pure idiot!!!! There is no way I will save up, buy a plot. Save up some more and build a flat and then you show up the first month claiming a third of the rent from that day henceforth totally ignoring all the money I have sunk into the project as if the rent collected is net profit!!! It will take me years [double figure] to break even and all along you are chewing a third of the rent!?
And to make matters worse, the money I was saving to buy the plot and build you had already chewed a third at source!!! What the hell!???
10% withholding tax, maybe. 30% on gross never.
And before people start screaming about the allowed deductions, they are negligible - salary for the caretaker, watchman etc. Bure kabisa!!!
I know and appreciate the fact that the government has to collect taxes to provide services but I support the can't pay, won't pay attitude till the government comes to it's senses and revises the rates to a sensible, logical and fair rate. 30% is too much!lets see parliament response.. what is the biggest problem here?Is the rate too high or is it the pain that you,ll chuck the 30% and it will end up in someones backpocket at the end of the day as @Mawinder has rightly put it... 30% on gross totally ignoring the amount invested is TOOOOO much!!! Must be the highest in the world! And considering the level of shortage of decent housing, only an idiot would have come up with this! And this tax will DEFINITELY be passed to the tenant - who is now also supposed to pay VAT on basic things! TOUGH times for Kenyans ahead! How can Uhuruto sanction VAT on basic items like maize floor, milk etc. while most Kenyans can't afford them even without the tax? And in their first year in power!!?? Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Elder Joined: 7/22/2009 Posts: 7,460
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maka wrote:kaifastus wrote:MaichBlack wrote:The person who came up with this 30% rate is a dimwit. Pure idiot!!!! There is no way I will save up, buy a plot. Save up some more and build a flat and then you show up the first month claiming a third of the rent from that day henceforth totally ignoring all the money I have sunk into the project as if the rent collected is net profit!!! It will take me years [double figure] to break even and all along you are chewing a third of the rent!?
And to make matters worse, the money I was saving to buy the plot and build you had already chewed a third at source!!! What the hell!???
10% withholding tax, maybe. 30% on gross never.
And before people start screaming about the allowed deductions, they are negligible - salary for the caretaker, watchman etc. Bure kabisa!!!
I know and appreciate the fact that the government has to collect taxes to provide services but I support the can't pay, won't pay attitude till the government comes to it's senses and revises the rates to a sensible, logical and fair rate. 30% is too much!lets see parliament response.. what is the biggest problem here?Is the rate too high or is it the pain that you,ll chuck the 30% and it will end up in someones backpocket at the end of the day as @Mawinder has rightly put it... 30% on gross totally ignoring the amount invested is TOOOOO much!!! Must be the highest in the world! And considering the level of shortage of decent housing, only an idiot would have come up with this! And this tax will DEFINITELY be passed to the tenant - who is now also supposed to pay VAT on basic things! TOUGH times for Kenyans ahead! How can Uhuruto sanction VAT on basic items like maize floor, milk etc. while most Kenyans can't afford them even without the tax? And in their first year in power!!?? Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Elder Joined: 2/27/2007 Posts: 2,768
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For those of us who do not seem to get point, here is an exempli gratia, I intend to build a block of flats having 15 flats or units at a cost of ksh 1.5 million per flat. This gives me a total of ksh 22.5 million required for the construction. Add another 10% or kshs 2.25 million for the professional fees. Assuming you are targeting the middle class rents of kshs 20k the cost of land will be roughly kshs 6 million (Assume you have already bought the plot). The capital cost requirement for this business will effectively be ksh 24.75 million (say ksh 25m) Now you approach a financier (HFCK who have cheaper cost of money rates) and present your proposal which they agree to fund. You construct the 15 units to completion within the shortest time possible. Assuming that the interest on money borrowed is 15%p.a and the loan is to be paid in 20 years (which is too long a period) I will end up paying a monthly instalment of about ksh 320k to HFCK. My monthly collection from the business is kshs 375k leaving me with a net of kshs 55k to pay others. The tax man arrives and demands his 30% of total collection which is kshs 112.5k. When this happens my returns from the business is kshs -57.5k!!! I will never recover my money... This scenario will still be similar to the one of an investor having the original construction capital in a bank account...my thoughts. ...besides, the presence of a safe alone does not signify that there is money inside...
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Rank: New-farer Joined: 2/20/2013 Posts: 47
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Kaigangio wrote:For those of us who do not seem to get point, here is an exempli gratia,
I intend to build a block of flats having 15 flats or units at a cost of ksh 1.5 million per flat.
This gives me a total of ksh 22.5 million required for the construction. Add another 10% or kshs 2.25 million for the professional fees.
Assuming you are targeting the middle class rents of kshs 20k the cost of land will be roughly kshs 6 million (Assume you have already bought the plot).
The capital cost requirement for this business will effectively be ksh 24.75 million (say ksh 25m)
Now you approach a financier (HFCK who have cheaper cost of money rates) and present your proposal which they agree to fund.
You construct the 15 units to completion within the shortest time possible.
Assuming that the interest on money borrowed is 15%p.a and the loan is to be paid in 20 years (which is too long a period) I will end up paying a monthly instalment of about ksh 320k to HFCK.
My monthly collection from the business is kshs 375k leaving me with a net of kshs 55k to pay others.
The tax man arrives and demands his 30% of total collection which is kshs 112.5k.
When this happens my returns from the business is kshs -57.5k!!! I will never recover my money...
This scenario will still be similar to the one of an investor having the original construction capital in a bank account...my thoughts. Inaitwa wizi wa kimabavu! You were put on this earth to achieve your greatest self, to live out your purpose, and to do it fearlessly.
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Rank: Elder Joined: 9/12/2006 Posts: 1,554
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Kaigangio wrote:For those of us who do not seem to get point, here is an exempli gratia,
I intend to build a block of flats having 15 flats or units at a cost of ksh 1.5 million per flat.
This gives me a total of ksh 22.5 million required for the construction. Add another 10% or kshs 2.25 million for the professional fees.
Assuming you are targeting the middle class rents of kshs 20k the cost of land will be roughly kshs 6 million (Assume you have already bought the plot).
The capital cost requirement for this business will effectively be ksh 24.75 million (say ksh 25m)
Now you approach a financier (HFCK who have cheaper cost of money rates) and present your proposal which they agree to fund.
You construct the 15 units to completion within the shortest time possible.
Assuming that the interest on money borrowed is 15%p.a and the loan is to be paid in 20 years (which is too long a period) I will end up paying a monthly instalment of about ksh 320k to HFCK.
My monthly collection from the business is kshs 375k leaving me with a net of kshs 55k to pay others.
The tax man arrives and demands his 30% of total collection which is kshs 112.5k.
When this happens my returns from the business is kshs -57.5k!!! I will never recover my money...
This scenario will still be similar to the one of an investor having the original construction capital in a bank account...my thoughts. While I agree with you on some points but I think you will be required to deduct your expenses before paying the tax man 30%, so you could try to be creative and save some money while you comply with the rules/ law.
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Rank: Elder Joined: 9/12/2006 Posts: 1,554
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Better to incorporate a company to run your real estate and be creative to lower the 30%...
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Rank: Elder Joined: 7/22/2009 Posts: 7,460
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Kaigangio wrote:For those of us who do not seem to get point, here is an exempli gratia,
I intend to build a block of flats having 15 flats or units at a cost of ksh 1.5 million per flat.
This gives me a total of ksh 22.5 million required for the construction. Add another 10% or kshs 2.25 million for the professional fees.
Assuming you are targeting the middle class rents of kshs 20k the cost of land will be roughly kshs 6 million (Assume you have already bought the plot).
The capital cost requirement for this business will effectively be ksh 24.75 million (say ksh 25m)
Now you approach a financier (HFCK who have cheaper cost of money rates) and present your proposal which they agree to fund.
You construct the 15 units to completion within the shortest time possible.
Assuming that the interest on money borrowed is 15%p.a and the loan is to be paid in 20 years (which is too long a period) I will end up paying a monthly instalment of about ksh 320k to HFCK.
My monthly collection from the business is kshs 375k leaving me with a net of kshs 55k to pay others.
The tax man arrives and demands his 30% of total collection which is kshs 112.5k.
When this happens my returns from the business is kshs -57.5k!!! I will never recover my money...
This scenario will still be similar to the one of an investor having the original construction capital in a bank account...my thoughts. I repeat. An idiot came up with this 30% tax on gross! On second thought, I apologize to all idiots out there. Even an idiot would have noticed that the rate is not viable!!! Bloody hell!!! They couldn't spare even an afternoon for a meeting before implementing this tax? A couple of idiots in a room would have come to a realization that you just don't tax at a rate of 30% on gross and expect the industry to survive? Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Member Joined: 9/29/2010 Posts: 679 Location: nairobi
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worse to come guys
CAPITAL GAINS TAX!!! all the money you made trading shares selling plots etc would be taxable if this law is passed..very misadvised
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Rank: Member Joined: 5/3/2010 Posts: 145 Location: East Africa
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Jamani wrote:Better to incorporate a company to run your real estate and be creative to lower the 30%... Well said. Get some creative accountant or tax advisor to set the whole thing up for you. Stay legal and pay as little as you can.
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Rank: Member Joined: 5/3/2010 Posts: 145 Location: East Africa
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I can see the thing being fought in parliament. Most MP's eventually invest in real estate - some sort of retirement scheme to ensure a steady income stream in case they do not make it next round.
We all know of their love for money and defiance (Not all) when it comes to paying tax, I doubt they will sit silent and watch someone slice 30% of their retirement benefit scheme.
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Rank: Chief Joined: 1/3/2007 Posts: 18,126 Location: Nairobi
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All those crying about the 30% tax on rental income... Perhaps, this means the cost of houses/construction is too high! Land prices have gone crazy. A reduction in rental income should discourage Developers paying increasingly higher prices for raw land. After all the cost of raw land is passed on to the price of housing units. A reduction in loan uptake [borrowers] should force lenders to reduce rates OR place cash in T-Bonds. A reduction in construction should force vendors of cement, furniture, tiles, etc to reduce their profit margins. Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: New-farer Joined: 10/17/2012 Posts: 26 Location: Nairobi
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MaichBlack wrote:Kaigangio wrote:For those of us who do not seem to get point, here is an exempli gratia,
I intend to build a block of flats having 15 flats or units at a cost of ksh 1.5 million per flat.
This gives me a total of ksh 22.5 million required for the construction. Add another 10% or kshs 2.25 million for the professional fees.
Assuming you are targeting the middle class rents of kshs 20k the cost of land will be roughly kshs 6 million (Assume you have already bought the plot).
The capital cost requirement for this business will effectively be ksh 24.75 million (say ksh 25m)
Now you approach a financier (HFCK who have cheaper cost of money rates) and present your proposal which they agree to fund.
You construct the 15 units to completion within the shortest time possible.
Assuming that the interest on money borrowed is 15%p.a and the loan is to be paid in 20 years (which is too long a period) I will end up paying a monthly instalment of about ksh 320k to HFCK.
My monthly collection from the business is kshs 375k leaving me with a net of kshs 55k to pay others.
The tax man arrives and demands his 30% of total collection which is kshs 112.5k.
When this happens my returns from the business is kshs -57.5k!!! I will never recover my money...
This scenario will still be similar to the one of an investor having the original construction capital in a bank account...my thoughts. I repeat. An idiot came up with this 30% tax on gross! On second thought, I apologize to all idiots out there. Even an idiot would have noticed that the rate is not viable!!! Bloody hell!!! They couldn't spare even an afternoon for a meeting before implementing this tax? A couple of idiots in a room would have come to a realization that you just don't tax at a rate of 30% on gross and expect the industry to survive? I beg to clarify something: If you are a corporate body eg company, running the outfit, then: the gross collections less (interest payments + other expenses) = taxable income. ie 375,000 - (interest on loan + service fee + land rates + insurance + HR costs + ...) Then if you are running it in your name, you cannot deduct any costs/expenses so you pay the tax on gross collections: wisen up and have all you real estate run by companies. Even the family trip to Mombasa will be expensed as Director's emoluments and reduce the taxable amount Classic case of tax avoidance (legal) by the rich
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Rank: Member Joined: 9/29/2010 Posts: 679 Location: nairobi
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VituVingiSana wrote:All those crying about the 30% tax on rental income... Perhaps, this means the cost of houses/construction is too high!
Land prices have gone crazy. A reduction in rental income should discourage Developers paying increasingly higher prices for raw land. After all the cost of raw land is passed on to the price of housing units.
A reduction in loan uptake [borrowers] should force lenders to reduce rates OR place cash in T-Bonds.
A reduction in construction should force vendors of cement, furniture, tiles, etc to reduce their profit margins. basically discourage all players from investing in the sector no?
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Rank: Veteran Joined: 12/23/2010 Posts: 1,229
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MaichBlack wrote:The person who came up with this 30% rate is a dimwit. Pure idiot!!!! There is no way I will save up, buy a plot. Save up some more and build a flat and then you show up the first month claiming a third of the rent from that day henceforth totally ignoring all the money I have sunk into the project as if the rent collected is net profit!!! It will take me years [double figure] to break even and all along you are chewing a third of the rent!?
And to make matters worse, the money I was saving to buy the plot and build you had already chewed a third at source!!! What the hell!???
10% withholding tax, maybe. 30% on gross never.
And before people start screaming about the allowed deductions, they are negligible - salary for the caretaker, watchman etc. Bure kabisa!!!
I know and appreciate the fact that the government has to collect taxes to provide services but I support the can't pay, won't pay attitude till the government comes to it's senses and revises the rates to a sensible, logical and fair rate. For once I agree with you. I "invested" in a house with money that had been taxed. Investors in real estate are treated harshly - I thought that there was supposed to be equity in taxation. At this point, I'm thinking I would have been better off putting my cash in a long term bond that pays abt. 12% interest. Withholding tax would 10%. And i'd be earning more than twice what I'm getting by way of rent. Perhaps I should lock in the capital gains on the house and invest in a mix of long term stocks and bonds. Or buy a couple of acres somewhere and plant trees. There will always be demand for timber.
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