The effect of rental income tax on the commercial real estate rent prices; Case study Kampala CBD

Abstract

The study intended to portray the effect of rental income tax on the commercial real estate rent prices in Kampala. The commercial real estate sector being one of the major sectors of the economy in Uganda has been affected by numerous factors including taxation policy. The study aimed to show how the rental prices of commercial property are affected by the rental income tax in relation to other determinants like location, accessibility, infrastructure, social amenities. The research problem was analyzed through a target population of 18 property owners and 9 taxation authority officials. Data for the purpose of the study was collected using questionnaires for both Uganda Revenue Authority officials and property owners and noted interviews for both. Study findings indicated that, rental income tax imposes costs on the net rental income of property owners yet they desire maximum returns from their investments. This calls for them to acquire avenues of achieving such objective and end up increasing rental prices to cater for tax cost as well as false rental income declarations and sometimes evasion of the tax. The following recommendations are made. Firstly, government should play a more active role in ensuring a rent review system to discourage frequent increases in the rental prices for commercial real estate. Secondly, sensitization should be done since most property owners are not so informed of this tax and its mode of payment. Thirdly, strict regulations should be established on tax evasion forex ample penalties to ensure maximum declaration of annual returns by property owners as well as improving the quality of social services as part of the accountability for the tax collected. The study also recommends that government should encourage growth of money lending institutions at lower rates to cheer up property developers and hence growth of the commercial real estate sector. The study recommends that there is need for furthers research to be done on rental income tax attitudes and compliance in Kampala since the level of tax payment can be affected by these factors as well as effects of bank interest rates on the rental prices of commercial real estate since mortgage financing is the major source of capital for establishment of the commercial properties.