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REITS Association of Kenya Officially Launched

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The REITs Association of Kenya (RAK) has been officially launched in a conference that convened stakeholders in the real estate sector and market stakeholders such as the Capital Markets Authority (CMA), the Nairobi Securities Exchange (NSE) and the Retirement Benefits Authority (RBA).

Players in the real estate and capital markets sectors established RAK in 2017 with the aim of promoting real estate investment trusts (REITs) in the country. Presently, the Association has 14 members that include the Kenya Property Developers Association, the Kenya Association of Stockbrokers and Investment Bankers, NSE, among others.

The launch comes at a time when the Kenyan government is driving the agenda on affordable housing, with an aim of offering Kenyans 500,000 house units.

Speaking at the launch, the Cabinet Secretary for Transport, Infrastructure, Housing, and Urban Development James Macharia observed that the Ministry is engaging with the National Assembly and the Senate to have the recently rejected housing levy approved. The levy is supposed to be a contribution by employees towards the National Housing Development Fund for the achievement of affordable housing.

The Fund will have a board and proper structures to ensure efficiency and avoid the recurrence of corruption that has taken place in some of the other national funds in the country, Macharia said.

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In addition, the RAK Chairman Edward Kirathe observed that regulators are taking the lead with regards to REITs as opposed to the private sector taking the lead and regulators playing catch-up. “This is a bold initiative,” he said.

Stanlib Fahari I-REIT is the first Kenyan REIT which posted a net profit of Sh171.1 million for the year ended December 2017 compared to Sh106 million in the previous year. Stanlib Fahari I-REIT is listed on the NSE.

REITs To Diversify Investment Options for Kenyans

Currently, investment in REITs stands at only 0.04 per cent with only 19 per cent of REITS contributing to RBA’s assets according to the Authority’s chief executive Nzomo Mutuku.

REITs are good for pension schemes because they increase liquidity, eliminate opacity, make valuation easier, and increase access for small pension schemes to invest in real estate, Mutuku said.

Additionally, REITs offer a great investment opportunity for people with large property assets that are difficult to manage according to RAK Chairman Kirathe.

REITs Regulation

During the launch, the director general of the budget, fiscal, and economic affairs at the National Treasury Geoffrey Mwau proposed a review of the regulation tax gap with regards to REITs through the Finance Bill 2018.

Moreover, Kirathe noted that there is a need for clarification through the Finance Bill 2018 on the law guiding subsidiaries owned by REITs. Currently, REITs are exempt from stamp duty and withholding tax.

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Lights, camera, action! Artistes brighten economy

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Covid-19 had negatively impacted entertainment revenues.

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KRA must ease tax filing to boost revenues

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Nikhil Hira Independent tax consultant and Director Bowmans Coulson Harney (law firm). [Courtesy]

Anyone who has been following Kenya’s budgets over the last few years will recall headlines each year saying that the country has set its largest-ever budget. 

The upcoming 2021/22 fiscal year is no exception, with Treasury Cabinet Secretary Ukur Yatani announcing a budget of Sh3.6 trillion – yes, the biggest ever! A little over Sh2 trillion will come from government revenues, with approximately Sh1.8 trillion of this from tax revenues. 

The balance will be borrowed – another common feature of the last few years. 

This year’s budget comes amidst an economic crisis brought on by the Covid-19 pandemic, with the inherent assumption that the pandemic will come to an end before the start of the next financial year. 

Given surges in infections that are being seen globally, and indeed in Kenya, this assumption may well be the deal-breaker. 

The Ministry of Health has already said that Kenya may see another wave of infections in July, fuelled by the Indian variant. This could result in more lockdowns with the associated impact on the economy and indeed revenue collections. The lack of vaccines is an issue that the government must address as a matter of great urgency if the country is to get through the pandemic without further economic woes. 

While deficits in government budgets are not uncommon, Kenya seems to be annually widening the gap between expenditure and revenues. 

If one applies this model to their household budget, the upshot will almost certainly be bankruptcy. 

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What is actually required is curtailing recurring government expenditures, which is something that the government has acknowledged in the past with proposed austerity measures. 

The reality is that Kenya has not succeeded in doing this, and the pressure on revenue collection is exacerbated. 

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When you add to the high level of wastage and corruption we are witnessing, the deficit will almost certainly continue to widen. 

The responsibility for tax collection and enforcement lies with the Kenya Revenue Authority better (KRA). 

There is no doubt that the authority has improved significantly in this task since it was set up in 1995. 

The taxman estimates that 4.4 million tax returns were filed by June 30 last year, up from 3.6 million in the previous year.  While this is a significant improvement, when compared to the country’s population, this number of returns seems unusually low. 

The increase in the number of tax returns, is to a large extent, due to the online reporting system, iTax, and a major push by KRA through taxpayer education.

There is no doubt that the online system has made filing tax returns significantly easier and gone are the large queues of people witnessed at Times Tower on deadline day. 

That said, there is still much to be done to make filing returns a seamless and painless exercise. 

System downtime during filing periods is something that all of us will have experienced, although, in typical Kenyan fashion, we inevitably wait until the last day to file our returns as we do with most things! 

The spreadsheet that one uses to file a return is by no means the simplest to use.  One key issue seems to be that taxpayers are not alerted to changes in the model until they try to upload a return. 

The spreadsheet does not allow one to make it more relevant to their sources of income – in essence, it is too rigid and inflexible. KRA should be able to rectify this without too much effort.

Last year was unusual in that different rates of tax were applicable in the first quarter as compared to the rest of the year.  This followed the Covid-19 relief measures that were introduced in April 2020. 

There was much debate about whether the changes were meant to apply for the whole year or whether some form of apportionment was needed. 

In the end, the decision was made for apportionment. One can argue about what the correct treatment should be, but the issue was how long it took for the decision to be made and, indeed, to amend the iTax system. 

The age-old notion has always been that the more complex and difficult it is to file a tax return, the more likely it will be that taxpayers simply won’t file their returns. While the issue with the system has been resolved, there is an inherent administrative issue here that must be addressed. 

KRA has to be significantly more proactive in dealing with changes in rates and law to ensure the least inconvenience to taxpayers. 

The writer, Nikhil Hira, is the Director of Bowmans Kenya.

The views expressed in this article are the author’s and not necessarily those of Bowmans Kenya  

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The age of gentrification is truly upon our country

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Never mind the businessmen outside Nairobi could be richer. Rural folks aspire to one day moved to a new county (city).

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