Will Kenyans Start Paying Taxes on Freehold Land?

The issue of taxing freehold land has recently come to the forefront in Kenya, stirring significant debate and concern among landowners. 

The Land Laws (Amendment) Bill Number Two of 2023, sponsored by Majority Leader Kimani Ichung’wah, proposes an annual levy on freehold land within or near urban areas. It also takes away power from independent commissions and gives it to the Cabinet Secretary of Land. 

Understanding the proposed amendments and their implications is crucial for all stakeholders, especially landowners who could face new financial burdens. The discussion surrounding this bill highlights broader issues of land ownership, taxation, and governance in Kenya.

This article will delve into the proposed amendments, their potential impacts, the government's subsequent withdrawal of the bill, and the future implications for landowners in Kenya.

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Proposed Amendments in the Land Laws Amendment Bill Number Two of 2023

The Land Laws (Amendment) Bill Number Two of 2023 aims to introduce a new clause mandating owners of freehold land in urban areas to pay an annual levy equivalent to the rates charged on comparable leasehold land. 

According to the bill, the Land Act of 2012 would be amended by inserting a new section immediately after section 54, stating:

“The owner of any freehold land situated within the boundaries of any urban area or city shall pay an annual land levy equivalent to land rent charged on comparable leasehold land or property of the same size in the same zone.”

The Urban Areas and Cities Act defines an urban area as including municipalities, towns, and market centers. While only Nairobi, Mombasa, Kisumu, and Nakuru enjoy city status, many developed regions in Kenya fall under this broad classification, encompassing numerous freehold properties and ancestral lands.

The Bill, however, promises possible exemption for agricultural land from paying that levy, stating, “Provided that any owner of freehold land that is put to agricultural use may be exempt from the annual land levy.”

Another notable provision from the Bill is section 49, which amends Section 30 of the Land Act, 2012, by deleting the word ‘Commission’ and substituting the words ‘national government or county government’. This amendment shifts the responsibility of collecting rent and pursuing legal action for non-payment from the National Lands Commission.  

Sections 53 to 78 of the Bill also amend several sections of the Land Act. These include sections 107 through 113, which previously authorized the National Lands Commission to investigate and assess properties for potential compulsory acquisition.

Under the new provisions, the authority to inspect and inquire about compulsory land acquisition will shift to the Cabinet Secretary. This means the Cabinet Secretary will now be responsible for overseeing these processes.

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Potential Impacts on Landowners

The proposed amendment has sparked significant concern among freehold landowners. Freehold tenure offers absolute ownership of land and property, allowing owners to use their land as they see fit without time constraints. In contrast, leasehold land tenure offers ownership for a defined period, capped at 99 years, according to the Constitution of Kenya.

Many see an annual levy on freehold land as an unfair burden. Landowners argue that they already pay various taxes, including land rates to county governments, stamp duty and capital gains tax when they buy/sell the land, and rental income tax if they’re generating rental income from their properties. 

The new levy would add to these financial obligations and effectively impose a rent on land they own in perpetuity.

Lands Cabinet Secretary Alice Wahome defended the bill, stating it was misinterpreted. According to Wahome, the new tax aims to create a sense of equality between those already paying land rents within cities and those who are not. However, critics argue that this levy could dispossess many Kenyans who might not be able to afford the additional expense.

Moreover, the bill proposes empowering the Lands Cabinet Secretary in land acquisition for state projects, a role currently held by the National Land Commission (NLC). This shift could centralize power and reduce the independence of the NLC, raising concerns about potential abuses and arbitrary land acquisitions.

Relief as Government Withdraws Proposed Amendment Bill

Following significant public backlash and various stakeholders' concerns, the government withdrew the Land Laws (Amendment) Bill Number Two of 2023. National Assembly Majority Leader Kimani Ichung’wah communicated the decision in a letter to National Assembly Speaker Moses Wetangula.

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Key Reasons for Withdrawal

Consultation with Stakeholders: Ichung’wah stated that the decision came after consulting various stakeholders. The majority party in parliament recognized the need for further discussion and consultation with the Ministry of Lands and Physical Planning and the National Lands Commission.

Constitutional and Legal Issues: The bill raised several constitutional and legal issues that required resolution. 

For instance, Article 40(3) of the Kenyan Constitution protects property rights, stating that the state cannot deprive a person of property unless it is for a public purpose or in the public interest, and only with prompt and full compensation. 

The proposed levy and potential for compulsory land acquisition conflicted with these constitutional provisions, posing risks of arbitrary denial of property rights.

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Double Taxation: The amendment's mandate for freehold landowners to pay an annual levy equivalent to leasehold land rates could conflict with existing legislation and put an economic strain on landowners.

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Too Early to Celebrate

While the bill's withdrawal has provided temporary relief for landowners, celebrating may be premature. The government and legislators might revisit the issue, considering alternative ways to address perceived inequalities in land taxation.

The government might undertake more extensive consultations with stakeholders to address the constitutional and legal issues identified. This process could lead to revised proposals that balance the need for revenue generation with property rights protections.

Future amendments could focus on more precise guidelines for land acquisition, ensuring adequate compensation and protecting property owners' rights. The role of the National Land Commission might also be re-evaluated to maintain its independence and prevent abuses of power.

The Land Laws (Amendment) Bill Number Two of 2023 proposed significant changes that could impact property owners, particularly in urban areas. While the government's bill withdrawal offers temporary relief, the underlying issues remain unresolved. 

Understanding and keeping up with changing laws and taxation regulations is crucial for all property owners. The potential for the bill to be reintroduced after some sections have been amended underscores the importance of vigilance. Staying informed about legislative developments can help landowners protect their investments and advocate for fair and just policies.