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/

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.

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.

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!!??

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.

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?

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.

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?