Land Rights in Kenya: Land Rates and Taxes.
Article 209 of the Constitution of Kenya allows the National and County Governments to levy taxes and charges to raise revenue. The National Government is charged with imposing value added tax (VAT) and custom duty among others while the County Governments may impose entertainment taxes, property taxes or others as allowed under an Act of Parliament. These taxes and charges sometimes relate to land. Below are some of the taxes charged, both by the national and county government relating to land;
Land Rates- This is a tax imposed by county governments within a municipality or township. Rates are payable in respect of services such as water, sanitation and sewerage services provided by the county. Whereas the county may not provide the services, it is mandatory for land owners to pay the rates imposed on the property. The imposition of rates is provided under the Rating Act while the Valuation for Rating Act empowers the county governments to value land for the purpose of determining the rates. Some properties such as land used for educational institutions, public religious worship centres, cemeteries and crematoria among others are exempted from payment of rates.
Land Rent- Land rent is a tax/rental amount payable to the lessor. In most circumstances, the lessor is the government or county government or state authorities such as the Kenya Railways Corporation, Kenya Ports Authority among others. Land rent is payable to the Lessor every year before end of January. The Lessor may revise the land rent as they will although most times, it is revised when a lessee seeks a development approval or a renewal of the lease. Land rent is only payable on leasehold property.
Income Tax - Income Tax Act (ITA) provides the framework for imposition of taxes on income from among others land. The main income taxes payable in respect of Land are Capital Gains Tax (CGT) and tax on rental income.
CGT is a tax chargeable on the gain on transfer of land, building and shares. This tax was re-introduced in 2015 having been suspended in 1985. CGT is charged at the rate of 5% of the gain. There are various exemptions on CGT provided under the ITA.
The tax on rental income is a tax arising from the gains and profits for occupation of property. The ITA provides for various ways of taxing rental income;
- Where the rent is payable to a non-resident, the tenant is required to withhold 30% of the rent and remit it to the Kenya Revenue Authority. The tax withheld is a final tax.
- Where the rent is payable to a resident, if the property is commercial, the tenant being an appointed agent, is required to withhold 10 % of the rent. The tax withheld is not a final tax and the landlord is required to file their income tax in the usual way.
- Where the rent is payable to a resident and the property is residential, the landlord may opt to either pay a monthly rental income tax, computed at 10 % of the gross rent a (final tax) or pay the instalment tax and final income tax in the usual way.
Stamp duty- Stamp duty, provided for under the Stamp Duty Act, Cap 480, is a tax payable on various instruments. Stamp duty is charged on instruments relating to land such as transfers, charges and leases on land. The rate of stamp duty is based on the instruments, the user of the property and the time of payment among others. There are various exemptions to payment of stamp duty granted under the Stamp Duty Act.
Value Added Tax (VAT) – Under that Value Added Tax Act, VAT is payable on the sale of commercial land. Last year (in 2018) however the High Court ruled that VAT is not payable on the sale or purchase of land, irrespective of whether or not the buildings standing on it are residential or commercial.