Addressing Inefficiencies in Property Rate Collection and Unlocking Revenue Potential

The National Rating Act of 2024 marks a significant step in reforming Kenya’s property rating and valuation framework. This law was introduced to address long-standing issues, which have been holding counties back from earning their full potential. A study conducted in 2018 by the National Treasury, with the support of the World Bank, revealed that county governments had substantial unrealised revenue potential, particularly from property rates. This catalysed the introduction of a new law to replace the outdated Rating Act of 1963 and the Valuation for Rating Act of 1956, which had failed to align property rates with the rising market values.

The Rating Bill was initially passed by the National Assembly in October 2023. It then underwent amendments in the Senate before a mediated version was approved in November 2024. It received presidential assent on 4th December 2024, marking the beginning of a legislative journey aimed at unlocking the revenue potential of county governments.

The new law encourages the use of modern technology to make valuations more accurate and efficient, ensuring that property values reflect the current market rates. Counties are now required to review and update their valuation rolls every five years, with a possible two-year extension if approved by the county assembly. A valuation roll is a list of ratable properties showing owners, their addresses, locations of land, tenure, acreage and assigned value.

To streamline operations, the Act creates the Office of the Chief Government Valuer, which will offer expert guidance and strategies to counties and the national government to promote best-practice on handling various valuation issues. It further establishes the National Rating Tribunal, which will handle property disputes quickly within 60 days, fostering fairness and efficiency in adjudication processes. In addition, the Act introduces measures to ensure accountability and equity in revenue collection. Property owners are required to pay rates promptly, with counties empowered to enforce payment through notices and, if necessary, the seizure and sale of properties with unpaid rates after a 60-day notice period. However, property owners may apply for rate remission and applications not acted upon within 60 days are deemed approved, providing a safeguard against administrative delays.

Further, the law excludes freehold agricultural land from its scope, focusing instead on urban properties and other rateable properties. Counties are encouraged to consider different property categories such as residential, commercial or agricultural when determining rates, allowing for incentives that promote good land use. Counties can also employ the use of private valuers to expedite the preparation of valuation rolls, preventing backlogs and alleviating the workload on government valuers to ensure timely updates.

This new legal framework is designed to address inefficiencies that have previously cost counties billions of shillings in lost revenue. By aligning property rates with market values, fostering responsible financial management and promoting transparency and accountability, the Act is set to transform county revenue collection, enabling better delivery of services and infrastructure development for the benefit of citizens.

The Act establishes a flexible framework, allowing county governments to use one of four major methodologies for valuing properties, customized to their specific areas, as specified in Section 9(2) of the Act. This is not a one-size-fits-all strategy, and here are the options:

  1. Annual Rental Value: This method focuses on the potential rental income of your property. It considers either the actual rent you could get or the equivalent of comparable rents in the open market. As the Act defines it, “annual rental value” means the amount arrived at based on the actual annual rent realizable or the annual equivalent of comparable rents. This method is most relevant when your property is used for rental purposes.
  2. Area Rating: This is a straightforward approach that calculates rates based on the size of your land. Counties can use a flat rate, a graduated rate based on acreage, or a differential rate based on land use. As the Act defines it, “area rate” includes a flat rate, graduated rate or differential rate adopted by the county government. This method may appeal to owners of larger land holdings.
  3. Unimproved Site Value: This approach values the land as if it were vacant, without considering any buildings or improvements Sections 7, and 9(2)(c)]. In essence, “unimproved site value” is the value of vacant land that does not include the value of any improvements. This method highlights the raw value of your land.
  4. Combined Approach: This method blends the value of the land with the value of any improvements Sections 7, and 9(2)(d)]. This offers a more comprehensive approach.

Before any of these methods are implemented, county governments must seek public input Section 10(1). This is not a mere formality but a key opportunity for land owners to shape how their property rates are calculated. Notices about proposed methods will be published in the Kenya Gazette and in at least two newspapers of wide national and county circulation, and will be circulated through electronic media, ensuring you get at least 60 days to make your views known Section 10(2). As the Act states, “Prior to the adoption of any form of rating, the County Executive Committee member shall, issue a notice of not less than sixty days inviting comments from the members of public Section 10(1)

National Rating Tribunal

A key feature of this Act is the establishment of the National Rating Tribunal Section 39(1). This tribunal is will hear and determine appeals and objections related to property valuations and rates, aiming to resolve issues within six months. The Tribunal will not be bound by the rules of evidence in the Evidence Act Section 42(2). If you disagree with the Tribunal’s decision, you can appeal it at the Environment and Land Court.

On Exemptions:

Not all properties will be subject to rates. The Act exempts certain types of land, including properties listed under Section 38 which include:

• Land used exclusively for public purposes.
• Places of public religious worship.
• Cemeteries, crematoria, and burial grounds.
• Public health facilities.
• Public educational institutions and libraries

However, these exemptions do not extend to properties used for profit or for residential purposes Section 38(3). The Act also specifies that places of public religious worship with profit-earning ventures are only exempt for the place of worship and that rateable property leased for foreign embassies are still subject to rates if registered under the rateable owner.,

Paying Rates Consequences of Default

The County Executive Committee Member will determine when rates are due, and you will be able to pay through authorised bank accounts or electronic payment systems, or by any other means prescribed under Section 15(2), and 16(1). However, it’s crucial to pay on time as the Act introduces stricter enforcement measures for defaulters under Section 19(2). These measures can include penalties, denial of county services, or even the creation of a charge against your property under Section 19(2)(d).

Relief for Those Who Need It

If you’re struggling to pay your rates, the Act provides some routes for relief. You can apply for a remission of rates, where a portion or the whole of the rates may be reduced Section 17(1). There are also possibilities for discounts and waivers of interest and penalties, though these will have specific criteria set by each county under Section 18(1).

Public Land and Contributions

The Act also addresses the issue of public land, with provisions for contributions in lieu of rates under Section 20(1). The National Land Commission will create guidelines for including or excluding certain public lands from valuation rolls [20(2)].

What Does this Mean for You as a Property Owner?

  1. More clarity and consistency: The Act aims to create a more transparent and consistent system for property taxation Section3(a).
  2. Increased public participation: You have a greater say in the valuation process as prescribed in Section 10(1).
  3. A structured dispute resolution process: The National Rating Tribunal offers a formal avenue for addressing disagreements by the Tribunal established under Section 39(1).
  4. Potential changes to your tax liability: Depending on the new valuations, your property taxes might increase or decrease.
  5. Stricter enforcement: Be prepared for stricter measures if you fail to pay your rates as provided under Section 19(2).

In conclusion, this Act is a huge step towards modernizing property tax collection in Kenya. Keep a close eye on updates from your county, as they will be creating their own specific legislation and regulations to implement this Act. This change not only impacts property owners, but also shapes how property ownership and responsibility is understood in Kenya.

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The Digital Nomad Work Visa

On 2nd October 2024, President William Ruto officially announced the launch of the Digital Nomad Work Visa (“Visa”), aimed at attracting high-earning global professionals, while providing them with the opportunity to experience Kenya’s rich natural beauty, people and culture. With the establishment of the Class N Digital Nomad Visa via Legal Notice Number 155 under our Citizenship and Immigration Regulations of 2012, remote workers no longer require tourist visas and can obtain a visa that grants them permission to operate remotely while living outside their country of permanent residency.

In an effort to grow our economy by encouraging increased spending on tourism, housing and local services, Kenya joins a short list of African nations that have recently introduced this type of visa, including Mauritius, Namibia and Seychelles. Over 50 countries across the globe, primarily in Central America and Europe, offer similar visas. This signals a growing trend towards accommodating flexible remote working.

 

What is the Digital Nomad Visa?

The Digital Nomad Visa is designed for individuals who can work independently of their location, including employees, freelancers, and business owners. The Visa allows these individuals—and in some cases, their family members—to reside in Kenya while maintaining employment or running businesses that are based outside of the country. This is an ideal option for professionals who seek to live abroad without giving up their employment or business activities in their home country.

Holders of this Visa will retain their foreign citizenship and may live and work in Kenya without needing to secure local employment. The Visa will also allow eligible remote workers to reside temporarily in Kenya and could potentially open the door for long-term residency and, eventually, citizenship.

 

Eligibility Criteria

 To qualify for the Visa, applicants must meet the following requirements:

  • Possess a valid passport;
  • Provide evidence that they are working remotely for an employer, clients, or businesses established outside Kenya. This proof may be in the form of an employment contract, ownership of a foreign company, or a freelancer’s business contract with a client;
  • Illustrate an annual income of at least $55,000 generated from sources outside of Kenya. We expect this amount to be clarified in the official gazette notice;
  • Proof of accommodation arrangements in Kenya during the applicants stay; and
  • Provide a police clearance certificate or equivalent document proving the applicant has a clean criminal record in their country of habitual residence.

 

Key Restrictions

 One of the distinguishing features of the Visa is its strict limitation on engaging in local employment. Visa holders are prohibited from accepting employment, whether paid or unpaid, from companies or employers based in Kenya. This restriction ensures that the Visa is reserved solely for those whose income is derived from sources outside of Kenya. Any individual found to be engaging in employment or income-generating activities within Kenya would be ineligible. This will allow Kenya to build its economy and tourism industry while safeguarding competition in the local job market.

While the President has launched this new Visa class, the Government is yet to provide clarification on the following:

  • The validity period of the Visa;
  • The application process and timeline;
  • Rules regarding dependants; and
  • Income tax considerations for Visa holders.

We expect the Government to publish an official notice in the Kenya Gazette that will provide for the above along with any additional information on how to obtain the Visa. This will also clarify the tax treatment of the foreign national’s income in Kenya. Currently Kenya’s Income Tax Act (Cap. 470) provides that foreigners become tax residents if they remain in Kenya for an aggregate period of 183 days in a year.

 

Comparative Analysis: Mauritius and Estonia’s Digital Nomad Visa

Estonia

In August 2020, Estonia became the first country to launch a digital nomad visa. The country offers both short-stay (up to 6 months) and long-stay (up to 1 year) Visas, which are available to remote workers with any nationality. Remote workers that wish to live in this country have two options. They can get a short-stay visa that is valid for 6 months or a long-stay visa that is valid for 1 year. Any person from any nationality can apply.

Some eligibility requirements are similar to the proposed Kenyan framework. For example, applicants must demonstrate proof of accommodation, proof that they can work remotely regardless of their location, and evidence of a clean criminal record. The other factors that will be considered are proof of sufficient funds through a bank statement from the last 6 months, valid health insurance of at least € 30,000 that covers the entire Schengen area and relevant academic certificates.

It is not possible to extend the visa, but a remote worker can apply for another visa while they are still in Estonia. If they apply for another digital nomad visa, they can only remain in Estonia for an additional 6-month period.

The Estonian framework also caters for dependants by allowing spouses and minor children to be included in the application. Adult children that are unable to cater for themselves due to a medical condition are also included as dependants.

A major difference in the visa restrictions between Kenya and Estonia is the latter allows visa holders to work for Estonian businesses or clients so long as their primary income is generated from outside of the country. Additionally, the threshold for the minimum income requirement is slightly higher since an applicant must illustrate that they receive at least € 4,500 per month. Digital nomads that reside in Estonia for more than 183 days are subject to a flat tax rate of 20%.

 

Mauritius

Mauritius introduced the Premium Visa, their version of the digital nomad visa in 2020. This visa targets professionals, retirees, travellers and their dependants who wish to live in the country for a term of 1 year (renewable for a further year). It offers a more attractive alternative to short-stay tourist visas. Only foreign nationals from an eligible country can apply directly. Others have the option of applying for a tourist visa, then submitting an application for the Premium Visa while they are in Mauritius.

Applicants must show evidence of remote work, health insurance, proof of accommodation, and travel itinerary (including a return flight ticket). Similarly, to Kenya’s proposed criteria, an applicant must not have any desire to participate in the local job market. However, the minimum requirement for sufficient funds is much less than in Kenya and Estonia, with applicants having to demonstrate that they receive a monthly income of at least $1,500. Additionally, the application process is online, it’s free and decisions on applications should take 48 hours. After digital nomads stay for a period that exceeds 183 days, they are subject to tax which is set at 15%. 

Conclusion

Kenya’s Immigration Department has not yet updated its electronic foreign national services (eFNS) portal to facilitate applications for this Visa category. We anticipate that the Department will soon issue additional guidance, including a more detailed list of documentation and procedural requirements for applicants. Our team is closely monitoring these developments and will continue to provide updates and advice as the process evolves.

 

For further assistance or information, please contact Jillian Ndirangu, Kabu Karanja or Jessica Obimbo.

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VOLUNTARY TAX DISCLOSURE PROGRAM.

The Finance Act 2020 (the Act), which was assented to by President Uhuru Kenyatta on 30th June 2020, introduced a wide range of tax and other measures aimed at raising additional revenue for the financial year 2020/21. Among the measures introduced by the Act is the Voluntary Tax Disclosure Programme (the VTDP).

The program is designed to assist taxpayers achieve tax compliance, by allowing them to voluntarily declare their historical tax liabilities to KRA and settle the principal tax, while obtaining the benefit of not having to pay, under certain conditions, the resulting penalties and interest.

The tax program will run for a period of 3 years with effect from 1st January 2021 to 31st December 2023.

The tax applies for all taxpayers provided that: –

1. The tax liabilities were accrued by the taxpayer within a period of 5 years prior to 1st July 2020.

2. The taxpayer is not under audit or investigations and is not party to ongoing litigations in respect of tax liabilities or any matter relating to the tax liabilities.

3. The taxpayer has not been notified of a pending audit or investigation by the commissioner.

The key benefit for the taxpayer is that: –

1. They qualify for relief in respect of the penalties and interest.

2. Shall not be prosecuted with respect to the tax liabilities disclosed.

The taxpayers who opt for the program will be entitled for the following: –

1. 100% waiver, if the principal tax is disclosed and paid within the calendar year 2021

2. 50% waiver, if the principal tax is disclosed and paid within the calendar year 2022

3. 25% waiver, if the principal tax is disclosed and paid within the calendar year 2023

No waiver of the penalties and interest will be available if the principal tax is paid after the third year.

It’s important to note that the relief of payment penalties and interest and prosecution shall be withdrawn by the commissioner where: –

1. The commissioner discovers that the taxpayer failed to disclose material facts in respect of the relief before the expiry of the agreement entered into with the taxpayer.

2. The taxpayer fails to meet the term of the agreement entered into with the commissioner

To take advantage of the program, please contact us for: –

1. An internal tax review to ascertain your status particularly for non-disclosures and incorrect reporting.

2. Arising from the review, we quantify the exposure and make declarations to KRA as soon as possible in order to obtain full benefit of the relief available.

For more information on this, please feel free to contact:

Benson Ngugi – benson.ngugi@attorneysafrica.com

Ken Rutere – ken.rutere@attorneysafrica.com

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MINIMUM TAX.

On 30th June 2020 the president of Kenya assented the Finance Act, 2020.

One of the key changes was on the corporation tax with the introduction of the minimum tax regime. The minimum tax payment is 1% of the gross turn over.

The effective date of the tax is 1st January 2021

The tax is a base tax payable by all whether one has made a profit or not. The income that are exempted from the minimum tax are: –

  1. Income exempted by the Act
  2. Employment income
  3. Income that is subject to residential income tax
  4. Income that is subject to Turn over Tax
  5. Income that is subject to capital gains tax.
  6. Income of extractive sectors

The minimum tax will be payable in four instalments by the 20th day of the 4th, 6th, 9th, and 12th month of the year of income.

It’s important to note that instalment tax is still applicable, but however this has been set such that where the instalment tax is higher that minimum tax, then minimum tax is payable. On the other hand, if the minimum tax is higher than instalment tax, then the minimum tax becomes payable.

Of concern is that companies which report tax losses due to investment incentives granted by the government will suffer the minimum tax which claws back the intended benefit to the investor.

Covid-19 has impacted many businesses negatively and its expected that such business will suffer loses in the coming years. The irony is that whilst the government is reducing the rate of tax for profit making companies, the introduction of the minimum tax will definitely have an impact on loss making companies and some startups.

For more information on this, please feel free to contact

Benson Ngugi – benson.ngugi@attorneysafrica.com

Ken Rutere – ken.rutere@attorneysafrica.com