Kenya to Review Rental Income Tax System in Upcoming Budget

Through the National Treasury, the Kenyan government has announced its intention to review the taxation of rental income from residential properties in the recently released 2024 Budget Policy Statement.

This decision follows public consultations where citizens actively voiced their concerns and suggestions, specifically requesting a revision of the current Residential Rental Income Tax system to ensure fairness and enhance tax collection methods. One key consideration highlighted during the consultations is the need for a progressive reduction and eventual elimination of the tax, acknowledging the crucial role affordable rents play in providing housing for the population.

Currently, the tax applies to residential rental income falling within a specific range, but the exact details were omitted for brevity. To encourage compliance, the government implemented a simplified tax regime for landlords within this bracket. This system involves a flat 7.5% tax on the total rental income or the option to pay at the corporate rate. However, the Policy Statement acknowledges that this approach has not achieved the desired level of compliance, resulting in a significant tax gap.

To address these challenges, the government plans to initiate a nationwide registration process for property agents. This move aims to enhance transparency and accountability within the rental industry, potentially improving tax collection. Overall, the government's review of the Rental Income Tax system reflects its commitment to promoting fairness and increasing the tax base.

This strategy aims to contribute to funding the upcoming Sh4.2 trillion budget for the 2024/2025 Financial Year, offering a more sustainable approach than relying solely on loans. This review is expected to be further detailed and revised in the upcoming budget.