The Finance Bill 2023 is a
crucial piece of legislation that proposes various changes to Kenya's tax laws.
These changes are designed to improve revenue collection for the government and
to support economic growth in the country.
In this blog, we will
discuss some of the key changes proposed under the Finance Bill 2023 and how
they relate to real estate in Kenya.
1. Requirement to account for withholding tax within 24 hours
As Property agents, we shall
now be required to deduct and remit rental income tax within 24 hours after
receiving the payment from tenants if the Finance Bill 2023 passes with no
amendments.
The Bill intends to reduce
the time for accounting from withholding tax from 20 days after the month of
the transaction to 24 hours after the transaction. This will enable the
government to collect withholding tax as quickly as possible and improve on the
government’s cashflows.
The bill states that a person who deducts rental income tax under this section shall, within
twenty-four hours after the deduction was made remit the amount so deducted to
the Commissioner together with a return in writing of the tax deducted and such
other information as the Commissioner may require", reads part of the Finance
Bill, 2023.
While this might ensure that
cash is paid at the earliest receipt of the cash rentals, it will also increase
the cost of doing business for agents
who collect rents on behalf of landlords.
2. Reduced Monthly Rental Income Tax Rate
The Bill proposes to amend
Paragraph 10 of the Third Schedule of the Income Tax Act by reducing the rate
of monthly residential rental income tax from 10% of the gross rental receipts
to 7.5%. This proposal is likely to be a welcome change for landlords who will
pay less tax on rental income.
This
is a welcome introduction, and the most favorable for the real estate industry.
4. Due Date for Capital Gains Tax
The Bill proposes to delete
the current provision of Paragraph
11A of the Eighth Schedule that provides for the due date for capital gains tax to be on or before the date of application for transfer of the property at
the Lands Office or latest the 20th day after transfer to be either immediately
on the receipt of the full purchase price by the vendor or immediately on the
registration of the transfer, whichever is earlier.
This amendment ensures that
the government will receive its tax quickly. Remember that this tax was
increased from 5% to 15%.
5. Notification By KRA For Security On Property For Unpaid Tax
The Bill proposes to amend
section 40 of the TPA by requiring the Commissioner to, within fourteen days
after the registration of notification to Registrar of Lands of a restraint of
disposal on a defaulting taxpayers property to inform in a taxpayer and any
other person who may have interest in the property identified in the
notification. Initially the notification period was seven days.
This amendment will provide
the taxpayer with more time to be notified by the Commissioner on the restraint
on disposition of a taxpayer's property and is thus a welcome move to taxpayers
from the previous seven days period.
6.
Introduction of National Housing Development Fund
The proposal
requires an employer and employee to each contribute 3% of employees basic
salary provided the combined
contributions shall not exceed KShs. 5,000 a month. For employees who qualify
for affordable housing the contributions accrue to the employee and shall be
used to finance
the purchase of a home under the affordable housing scheme. This amendment is aimed to support the affordable housing government
agenda.
If well
implemented, this will ease the housing shortage.
Conclusion
In conclusion, the Finance
Bill 2023 proposes various changes to Kenya's tax laws that will have a
significant impact on the real estate sector. The proposed increase in excise
duty on bank loans could make it more expensive for property owners and
developers to access financing and sell their properties. However, the proposed
reduction in corporate tax rate for affordable housing developers may encourage
more real estate companies to engage in affordable housing development.
The Finance Bill will in the
next few days be subjected to public participation. We continue to encourage
everyone to participate by providing comments to the National Assembly when the
time comes.
Otherwise, we shall have
some provisions in the Finance Act taking effect from 1 July 2023, others from
September 2023 and the rest from January 2024.
