The taxman is pushing to compel residential landlords onto a government digital register, as a decade of voluntary compliance has left at least KSh 83 billion in annual rental income tax uncollected.
- •The Draft Income Tax (Residential Rental Income Tax) Regulations 2026, open for public comment until May 25, 2026, proposes making registration on the Electronic Rental Income Tax System (eRITS) mandatory for all landlords within the existing monthly rental income tax band.
- •The regulations apply to resident persons earning gross rental income above KSh 288,000 but not exceeding KSh 15 million annually, who pay a flat 7.5% tax on gross receipts with no deductions permitted.
- •The revenue arithmetic explains the urgency with KRA collecting roughly KSh 17 billion annually from rental income tax against a government estimate of at least KSh 100 billion in potential revenue, a gap that has persisted even after the Finance Act 2023 cut the rate from 10% to 7.5% to encourage compliance.
To illustrate the scale: a landlord earning KSh 1.2 million annually owes KSh 90,000 in tax. Multiply that across an under-declared sector and the numbers are significant. Monthly rental income (MRI) collections have grown, reaching KSh 12.3 billion, KSh 13.2 billion and KSh 14.4 billion in successive financial years, but the trajectory falls well short of what the tax base should be generating.
KRA's 2022 audit found underreporting as high as 75% in some Nairobi neighbourhoods, and the authority estimates over 60% of landlords remain entirely outside the formal tax system. The eRITS numbers reinforce that assessment. Formally rolled out in September 2025 with a stated target of KSh 80 billion in annual collections, the platform had onboarded just 1,412 landlords and 26,668 units by April 2026.
Landlords expecting income to exceed KSh 15 million during a year must notify the Commissioner before year-end or face criminal liability. Those wishing to opt out of the MRI regime must give three months notice before year-end, with the change taking effect only in the subsequent year. The regulations also cover partnerships, a significant provision for family property arrangements and real estate joint ventures. Separately, the Finance Act 2023 introduced a tax agent mechanism, allowing property managers to deduct and remit MRI tax at source, adding a parallel enforcement channel.
The no-deductions rule remains the sharpest point of contention with Landlords with high mortgage financing or maintenance costs carrying the full tax burden on gross income, with no relief for operating expenses. Combined with an eRITS platform that requires internet access and has experienced eCitizen downtime, the mandatory registration proposal faces practical as well as political resistance.
The final shape of the regulations will determine whether Kenya's shift from voluntary to compulsory rental tax compliance can bridge a gap that has proved stubbornly wide for a decade.
