KRA lays ground for collection of capital gains tax

Saturday December 13 2014

Kenya Revenue Authority (KRA) Commissioner General John Njiraini. The capital gains tax will be charged on the transfer of properties. PHOTO | FILE

Kenya is on course to enforcing the contentious capital gains tax (CGT) despite growing fears over its impact on the securities and property markets. The proposed five per cent tax, to be charged on the transfer of properties and shares, takes effect on January 1.

“Over the past decade, most wealth has been in the property and capital market sectors. However, we continued to shield those who were making the largest amount of money from these two sectors from taxation, while taxing incomes from meagre sources like formal employment,” said John Njiraini, the Commissioner General of the Kenya Revenue Authority.

The African Securities Exchanges Association has said taxation of proceeds from the sale of shares, debt instruments and properties are among the impediments to the growth of securities exchanges in Africa.

Tanzania charges CGT at 20 per cent for foreign-owned firms and 10 per cent for residents; Uganda has a capital gains tax of 30 per cent. In Kenya the tax is being revived after 30 years, having been suspended in 1985.

“Kenya cannot enhance tax mobilisation and improve tax productivity as long as fiscal policy continues to shield high growth sectors from taxation,” said Mr Njiraini.

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The maxim that taxation policy should follow the path that wealth flows take cannot be made any clearer than it has been in respect of the five per cent capital gains tax, but investors and tax experts say the move will hurt investment in property, equities, oil and mining.

KRA has said that CGT is payable upon transfer of property, and that any delay or failure will attract penalties and interest.
EAC member countries are looking upon the capital markets as cheaper and alternative sources of financing the region’s mega infrastructure projects in the energy, transport and water sectors.

Under Kenya’s Income Tax Act, properties include land, buildings and investment shares. The re-introduction of the controversial tax is part of the Treasury’s efforts to finance the government’s growing expenditure.

“Capital markets stakeholders have appealed to the government to defer the introduction of CGT on transactions to enable the industry to grow,” said Eddy Njoroge, chairman of the Nairobi Securities Exchange.

Deputy President William Ruto has assured stakeholders in the capital markets that the government is open to discussions on the implementation of CGT on securities market transactions.

According to KRA, plans are underway to ease the process of payment of CGT by developing a module within the iTax system that will allow taxpayers to make electronic declarations.

“The implication of this development are profound as it will remove the need for those buying or selling property to physically visit land registries to file stamp duty valuation applications,” said Njiraini.

“We expect this development to reduce the time and effort required to transact property transfers, and hence positively impact Kenya’s Doing Business Ranking,” he added.

The new iTax Stamp Duty and Capital Gains Tax Declaration Platform is expected to be up by February 2015.