Tax receipts from the sale of land, houses and shares in private companies rebounded to grow 40.39 percent in the nine months through March, signalling increased transactions in real estate and private equity.
The Kenya Revenue Authority (KRA) received Sh15.63 billion in capital gains tax (CGT) in the review period compared with Sh11.14 billion a year earlier, the Treasury says in the latest update on revenue performance.
The growth marked a turnaround from a 21.88 percent drop in the nine months to March 2024 from nearly Sh14.26 billion a year earlier.
The rebound in the review period came on the back of bruising legal battles between the KRA and businessmen over the enforcement date for the tax, which tripled to 15 percent in January 2023.
The KRA has since 2023, been engaged in court fights with several tycoons whom it accuses of paying the CGT in the middle of deals in 2022 to avoid paying a higher CGT rate in the year that followed.
Firms and households selling land, buildings and unquoted securities such as shares in privately-held companies are charged a 15 percent CGT tax on net proceedings from the transactions.
Buyers, on the other hand, are charged a stamp duty at the rate of four percent of the value of property in major towns and two percent in rural areas, while the rate for unquoted shares is one percent.
Defaulting on CGT dues attracts a fine at the rate of 20 percent of the tax due.
The tax rate on profit made from real estate deals and sale of shares in private companies was raised to 15 in January 2023 from five percent previously despite pleas from resistance from business associations and professional bodies over a sudden jump.
The taxman has since accused some companies of underpaying CGT in 2022 for deals completed in 2023 when the higher rate had been enforced.
The KRA maintained that the property tax is paid when full payment is made as opposed to when the transfer of the property of shares is registered.
Companies associated with Nice & Lovely founder Paul Kinuthia, textile billionaire Jaswinder Bedi, politician Peter Kenneth and city lawyer Ambrose Rachier, are among those fighting accusations of paying CGT at the rate of five percent by December 2022 when the deals were closed when the higher rate was effective.
Other investors whose companies have been caught in the tripwire of this legal change include Nairobi tycoon Amos Gichuki Ngonjo and Nishil Kumar and two other shareholders of drugs distributor Harleys, which was sold to a subsidiary of Mauritian conglomerate IBL Group for Sh3.69 billion.
The taxable capital gains, and proceeds from sale, are not adjusted to changes in inflation over the years.
Tax experts, business associations and professional bodies unsuccessfully called for the introduction of inflation adjustment —technically known as indexation— on the buying price of the property when calculating the CGT.
The debate around inflation adjustment on CGT was rife when the country re-enforced the tax in January 2015 after a 30-year suspension, but was shot down on the ground that it will “complicate the process” of calculating the rate.
Ultimately, Kenya settled on a modest five percent rate on net proceeds from sale of property like land and buildings seen as simple and low enough to take care of inflationary changes over the years.
