Introduction
In September 2017, the High court through Justice John Mativo in ruled that Capital Gains Tax in Kenya should not be taxed in advance but after the transfer of the properties whose sale is subject to capital gains tax is complete.
Capital gains tax is the tax on the capital gain. It is only applicable when the actual capital gain is positive. When there a negative capital gain, the loss may be carried forward to be utilized in similar transactions.
Read: Our earlier blog post on Capital Gains Tax in Kenya
Where is capital gains applicable?
Three types of properties attract capital gains tax. These are:
- Land
- Buildings
- Shares
Currently, transfer of land, buildings and securities (with exceptions) attracts the tax at the rate of 5 % effective from 1st January 2015 according to the Finance Act 2014.
Besides, transfers in the extractive industry in Kenya (mining and petroleum industry) also attracts the tax at the rate of 30 % for residents and 37.5 % for non- residents with permanent establishments in Kenya. The transferor has the responsibility of making the tax payments.
The tax is payable by the 20th of the month after the transaction. It is the responsibility of the transferor to make the tax payment. There are no tax returns.
When is capital gains tax applicable?
In court, KRA had insisted that Capital Gains tax should be payable before any transfer. KRA had already put in place mechanisms to collect the tax by linking the stamp duty and i-Tax payment module with payment of Capital Gains Tax.
Sifting the payment to a later date after the transfer is complete would be costly to KRA. However, collecting the tax before transfer was also costly to the taxpayer since in cases where the taxpayer had not received payments, they would have to borrow to pay the tax.
Additionally, some transactions do not fall through. In such a case, the transferor would have been left in a disadvantaged situation because they would have had to claim back the tax from KRA.
Feel free to send us questions or topics on tax and investments in Kenya that you would wish to be covered in this Website.
Disclaimer
This post is for general overview and guidance and does not in any way amount to professional advice. Hence, www.taxkenya.com, its owner or associates do not take any responsibility for results of any action taken on the basis of the information in this post or for any errors or omissions. Kenyan taxpayers must always rely on the most current information from KRA. Tax industry in Kenya is very dynamic.
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