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New Mandate Requires Property Agents to Remit Rental Income Taxes Within 24 Hours.

In the latest development pertaining to the Finance Bill of 2023, property agents will now have an additional responsibility to deduct and remit rental income tax promptly. According to the new guidelines, agents must ensure that the rental income tax is deducted and remitted within 24 hours of receiving payment from the tenants.

According to a provision in the Finance Bill of 2023, any individual who deducts rental income tax under this section must promptly remit the amount deducted to the Commissioner within twenty-four hours of the deduction being made. The remittance must be accompanied by a written return detailing the tax that was deducted, as well as any other information that the Commissioner may request.

The agents are responsible for deducting a flat rate of 10% of the gross rent paid to resident landlords, excluding VAT where applicable, and submitting it to KRA no later than the 20th day of the month following the rent payment. Nonetheless, the latest proposal mandates that agents remit the tax within 24 hours of receiving the payment.

Monthly residential rental income regime applies to resident persons earning rental income from residential premises that is between Ksh288,001 to a maximum of Ksh 15,000,000 in any year of income. This provision specifically targets the rental income collected by agents who have been appointed by the commissioner in charge of domestic taxes at the Kenya Revenue Authority (KRA).

The proposal has been put forward to incorporate the withholding tax on rental income. Section 35(3)(j) of the Income Tax Act imposes a withholding tax on rental income, which came into effect on January 1st, 2017.

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The Kenya Revenue Authority (KRA) has appointed agents to implement the Rent Withholding Tax (RWT) system, which involves deducting and remitting taxes on rent paid to resident landlords under Section 35(3)(a) of the Income Tax Act.

The selection of agents is done through the iTax system, and those selected are notified via both a manual letter and an i-tax generated notification. To ensure compliance, the appointed agents receive the necessary capacity building.

KRA had initially prioritized private institutions with high compliance levels and public institutions as agents, but anyone appointed by the Commissioner is authorized to withhold tax on rental income.

Withholding tax is not a final tax for resident landlords. This means that once the tax due is paid; a withholding certificate is issued automatically to the landlord, and will be used to claim tax credits while filling the annual return or monthly rental income.

The proposal seeks to introduce a system that enables the tax to be collected at the source, which would simplify the process of tax collection and improve compliance.

This new regulation is aimed at streamlining the tax collection process and ensuring that landlords pay their fair share of taxes on rental income.

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