What happened

The Kenya Revenue Authority (KRA) disclosed this week that landlords who fall under a newly defined low‑income category will be exempt from the 10% withholding tax normally levied on rental income. The announcement, published on the KRA portal and reported by Kenyans.co.ke, states that the exemption applies to owners whose annual rental receipts are below a threshold that the authority describes as “low‑income”. No exact monetary figure was released, but KRA officials indicated the policy targets small‑scale residential landlords who have traditionally struggled with cash‑flow constraints. The exemption will take effect from the start of the next fiscal year, meaning landlords will no longer have to deduct tax at source when receiving rent from tenants.

Context and background

Rental income in Kenya has been subject to a 10% withholding tax under Section 13 of the Income Tax Act since the early 2000s. The tax is deducted by the tenant before payment reaches the landlord, and the tenant is responsible for remitting the amount to KRA on the landlord’s behalf. This system was introduced to broaden the tax base and improve compliance, especially in the informal rental market where landlords often operate without formal accounting records. Over the years, the tax has generated significant revenue for the treasury, but it has also been criticised for placing a disproportionate burden on small landlords who rely on rent as a primary source of livelihood.

KRA’s decision to carve out an exemption follows a series of stakeholder consultations held over the past twelve months. Representatives from the Kenya Landlords Association, the Kenya Private Sector Alliance, and various civil‑society groups argued that the blanket tax rate penalised owners of modest properties, many of whom earn less than the average Kenyan household income. In response, KRA commissioned a review that examined rental‑income data from the past five years, concluding that a sizable proportion of landlords – estimated at roughly 30% of registered rental properties – earned below what the authority now classifies as low‑income. The review also highlighted compliance gaps, noting that many small landlords failed to register for tax purposes, leading to under‑reporting and occasional disputes with tenants over tax deductions.

While the exact definition of “low‑income” remains to be detailed in forthcoming KRA guidelines, the agency has signalled that the exemption will be limited to residential landlords who own a single dwelling unit or a small portfolio of units generating modest rent. Senior citizens and disabled persons who rent out spare rooms are also expected to benefit, reflecting broader social‑policy objectives aimed at protecting vulnerable groups. The move aligns with the government’s recent fiscal reforms that seek to balance revenue collection with economic relief for those most affected by the cost‑of‑living pressures.

Compared with what is normal

Under the standard regime, every rental payment triggers an automatic 10% deduction, regardless of the landlord’s income level or the size of the property portfolio. This uniform approach differs from tax treatment in other sectors, where progressive rates or exemptions based on turnover are common. The new exemption creates a deviation from that norm, introducing a tiered structure that mirrors personal‑income tax brackets. The following points illustrate the shift:

• Normal practice: All landlords, from large commercial property firms to individual owners of a single room, are subject to a flat 10% withholding tax.
• Exempt category: Landlords classified as low‑income will no longer have tax deducted at source, effectively reducing their tax liability to zero on rental receipts.
• Revenue implication: KRA estimates a short‑term dip in rental‑tax collections of up to 5% of total rental‑tax revenue, offset by anticipated improvements in compliance among small landlords.
• Compliance burden: Tenants will no longer need to withhold tax for exempt landlords, simplifying rent‑payment processes and reducing administrative errors.

Why it matters

For Kenyan SMEs that own or manage rental properties, the exemption could translate into immediate cash‑flow relief. Landlords who previously had to set aside a portion of each rent cheque for tax will now retain the full amount, improving their ability to service mortgages, maintain properties, or reinvest in additional units. The policy also reduces the administrative load on tenants, who no longer need to calculate and remit tax on behalf of exempt landlords. From a broader perspective, the exemption signals a shift in fiscal policy toward targeted relief rather than blanket taxation, which may encourage more informal landlords to formalise their operations and register with KRA. However, the loss of revenue for the treasury could prompt the authority to seek alternative sources of tax, potentially affecting other sectors.

Practical steps

• Verify eligibility: Review your rental income statements for the last fiscal year and compare them against the low‑income criteria that KRA will publish. If you own only one residential unit and your annual rent is modest, you are likely eligible.
• Update KRA records: If you qualify, submit a formal exemption request through the iTax portal, attaching supporting documents such as tenancy agreements and bank statements that prove your rental receipts.
• Inform tenants: Communicate the change to your tenants in writing, confirming that they no longer need to withhold tax from rent payments.
• Maintain documentation: Keep detailed records of all rental transactions, even if you are exempt, to demonstrate compliance in case of future audits.
• Seek professional advice: Consult a tax adviser to ensure that you correctly apply the exemption and to explore any remaining tax obligations, such as filing an annual income‑tax return.

Tax Planning & Compliance services at Beavoren Ventures can help landlords navigate the new exemption rules, prepare the necessary filings on iTax, and ensure that all documentation meets KRA’s requirements.

Talk to our team at Beavoren Ventures - info@beavorenventures.co.ke - to set up your systems correctly.

Disclaimer: This article is informational and does not constitute formal tax, audit or legal advice. For guidance specific to your circumstances, please contact Beavoren Ventures.