eRITS: KRA Rolls Out New Tax System For Landlords; How It Works

National Treasury Principal Secretary Dr. Chris Kiptoo on Thursday, April 10, launched the Electronic Rental Tax Information System (eRITS), a groundbreaking initiative aimed at revolutionizing rental income tax collection. 

Kiptoo, praised the Kenya Revenue Authority (KRA) for making this innovation a reality, highlighting its potential to increase rental income tax by more than five times. 

He called for a mandatory expansion of the country’s fiscal space and for delivering efficient public services, and innovative solutions like eRITS are essential to improving the taxpayer experience and encouraging compliance.

The PS also highlighted that Kenya's tax revenue as a percentage of GDP is still below the East African Community (EAC) target of 25 percent. To address this gap, the government has reviewed its tax policy framework and developed two key documents: the National Tax Policy and Medium-term Revenue Strategy (MTRS) aimed at optimizing tax collection and boosting economic growth.

Explained: What Is eRITS?

eRITS is a digital platform launched by KRA to streamline the process of rental income tax compliance. The system is designed to make it easier for property owners (landlords) to declare and pay taxes on rental income, improving the efficiency and transparency of the process.

One of the key features of eRITS is its ability to allow landlords to register their rental properties, file tax returns, and pay taxes online, eliminating the need for physical paperwork and visits to KRA offices. This digital approach simplifies the process, making it more accessible and less time-consuming for property owners.

Another important aspect of eRITS is its automated tax calculations. The system calculates the rental tax owed by property owners based on the declared income, reducing the risk of errors and making tax compliance simpler. By integrating data with other KRA systems, such as iTax, eRITS ensures that the information about property owners and their rental income is accurate and up-to-date.

The introduction of eRITS is also aimed at improving tax compliance. By digitizing the process, the system seeks to bring more landlords into the tax net, reduce instances of tax evasion, and enhance overall revenue collection.

Finally, eRITS strengthens monitoring and enforcement. KRA can better track rental tax compliance, monitor payments, and enforce tax regulations through the system.

Overall, eRITS is part of Kenya’s broader efforts to modernize its tax systems, particularly in sectors like real estate, where rental income tax compliance has historically been low. It represents a significant step forward in increasing tax revenue and ensuring a more efficient, transparent tax system.

Why It Matters

The launch marks a significant step toward addressing the large gap in rental income tax collection identified in the MTRS. 

According to the MTRS, Kenya has the potential to increase rental income tax collection by up to five times the current amount. Treasury estimates that optimal rental income tax collection could reach around Ksh 100 billion. 

The MTRS also proposes aligning the rental income tax rate, currently at 7.5%, with the corporate income tax rate of 30%. This move is part of a broader effort that builds on previous discussions around rental income mapping.

Kiptoo acknowledged the rising pressures of increasing public debt and expenditures, noting that Kenya's economic future depends on broadening its tax base, exploring new revenue sources, and optimizing collections across various sectors

Despite previous efforts, he revealed that rental income tax collection remains well below its potential. Currently, the government collects just Ksh 17 billion annually from rental income, far below the estimated Ksh 100 billion, which represents only 17 percent of the expected revenue from the sector.

"To meet our national revenue targets, we must confront these challenges head-on and implement strategic solutions that ensure all eligible taxpayers fulfill their obligations," Dr. Kiptoo urged KRA.