Kenya: Why the Finance Bill 2026 Proposal On Non-Resident Landlords Is a Step Towards Tax Equity

The real estate sector remains one of Kenya's most vibrant and important economic pillars. According to the Kenya National Bureau of Statistics (KNBS) 2023/2024 Real Estate Survey, the sector recorded an impressive growth rate of 33.7 percent, underscoring its critical role in wealth creation, investment, urban development, and employment generation.

This remarkable growth has been driven by a rapidly expanding population, increased urbanization, and a growing middle class whose demand for residential and commercial properties continues to rise. Yet despite its significant contribution to the economy, the sector's contribution to the national tax base remains extremely low.

The gap between the sector's economic performance and its tax contribution is most evident in the administration of Monthly Rental Income (MRI) tax. Introduced in 2016, MRI applies to landlords earning between Ksh 288,000 and Ksh 15 million annually. While Kenya Revenue Authority (KRA) has undertaken numerous initiatives to improve compliance, significant challenges remain, particularly in identifying landlords and gaining visibility into rental transactions.

The numbers tell a compelling story. MRI collections stood at Ksh 12.3 billion in Financial Year 2021/2022, increased to Ksh 13.6 billion in FY 2022/2023, and reached Ksh 14.4 billion in FY 2023/2024. However, estimates indicate that the sector has the potential to generate more than Ksh 100 billion in tax revenue annually. This means that only about 14 percent of the potential revenue is currently being realized.

Such a gap points to a fundamental challenge, which is the absence of comprehensive structures and systems that ensure all landlords contribute their fair share of taxes. The result is an uneven playing field where compliant taxpayers shoulder an uneven burden while many eligible taxpayers remain outside the tax net.

To address these challenges, KRA has established various initiatives including the recent introduction of the Electronic Rental Income Tax System (eRITS), a digital platform designed to simplify rental income tax compliance and improve transparency within the sector.

However, one of the most transformative proposals contained in the Finance Bill 2026 is the reform of the taxation framework for non-resident landlords.

Historically, Kenya has relied primarily on withholding tax at the rate of 30 percent on gross rental income under Section 35 of the Income Tax Act as the principal mechanism for taxing non-resident property owners. In practice, this system has faced substantial limitations. Since the ob