A company associated with billionaire businessman Jaswinder Bedi has suffered a double blow after the Tax Appeals Tribunal ordered it to pay higher capital gains tax (CGT) and exchange rates for the sale of a property in Nairobi about three years ago.
CGT is the levy investors pay on the profits—or gain—made when they sell, give away, or dispose of an asset, such as shares or property like homes or buildings.
The Tribunal dismissed an appeal by Fine Spinners Limited to reverse the decision by the KRA to charge CGT for the sale of a property in Nairobi’s Industrial area at the rate of 15 percent.
Spinners, the tribunal noted, sold the property to drugs distributor Laborex Limited for $6 million (Sh778.2 million at the current exchange rate) in July 2023, when the CGT rate had been tripled and the exchange rate was 140.37. This means the manufacturer received Sh862,252,800.
The textile maker had argued that the transfer was completed in December 2022, when the applicable CGT was five percent and the conversion rate was 120, putting the property's sale value at Sh720,000,000.
However, the tribunal agreed with the taxman that both transfer and payment were done in July 2023 when CGT was at 15 percent and the exchange rate was at Sh140.37, thus allowing the KRA to collect CGT amounting to Sh77,797,617. The KRA demanded interest of Sh3,873,146.00, pushing up the tax due to Sh81,336,006.00.
“The upshot to the foregoing is that the Tribunal finds and holds that the Appeal fails,” said the five-bench tribunal which was chaired by Christine Muga.
By the end of December 2022, the sale of unquoted shares, property, as well as intangible assets such as software and business goodwill attracted a lower CGT of five percent.
However, this was tripled to 15 percent effective January as the government went after the booming property market and a flurry of mergers and acquisitions.
On December 23, 2022, Spinners made a payment towards CGT at the rate of 15 percent due to net gains from the sale of land at a price of $6 million.
However, the KRA noted that in its review of the affairs of Spinners with regard to this transfer, it noticed that the stamp duty was paid on July 10, 2023.
The taxman reached the conclusion that the transaction took place on July 10, 2023, when the CGT had been reviewed upwards by the Finance Act of 2023.
In its review, the KRA also noted that Spinners had underdeclared the exchange rate, it therefore decided to apply a conversion rate different from that which the Spinners had used in determining the purchase price in Kenyan currency.
On March 11, 2024, the KRA issued its notice of tax assessments for CGT and interest Sh77,797,617, which Spinners objected to two months later. The KRA affirmed this assessment, which saw Spinners appeal to the tribunal on June 21, 2024.
Spinners argued that the two parties in the transaction had completed everything and that the sale of property was delayed transfer of the asset to the buyer had been delayed by the Ministry of Lands.
Nonetheless, after receiving funds from the buyer, Spinners told the tribunal that it computed and remitted a CGT of Sh26,000,000.00 to the KRA. The taxman acknowledged receipt of the payment through an email of January 18, 2023.
An earlier ruling by the tribunal found that the due for CGT is when a property seller receives full payment, not when the transfer is registered.
However, in the case of Spinners, the tribunal did not find evidence that the textile maker had received payment before December 2023, as there was an agreement that payment would only be done by the buyer upon registration of transfer and settlement of its debts with M Oriental Bank Limited and Diamond Trust Bank.
