Politics and policy
By EDWIN MUTAI, emutai@ke.nationmedia.com
In Summary
- The new law, which was passed through an amendment to the Finance Bill 2014, sets companies and individuals on the path to paying taxes on the proceeds of property sold beginning January 1, 2015.
- The tax will be charged “at the rate of five per cent and shall not be subject to further taxation”.
- Kenya removed capital gains tax from its laws in 1978 hoping to use it to attract investment in its stock market, mining licences and real estate among other sectors.
Parliament Wednesday amended the law to bring back the capital gains tax 36 years after it was abolished.
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The new law, which was passed through an amendment to the
Finance Bill 2014, sets companies and individuals on the path to paying
taxes on the proceeds of property sold beginning January 1, 2015.
Kenya removed capital gains tax from its laws in
1978 hoping to use it to attract investment in its stock market, mining
licences and real estate among other sectors.
Members of Parliament Wednesday brought back the tax by amending the Eighth Schedule of the Income Tax Act.
“Subject to this Schedule, income in respect of
which tax is chargeable under Section 3(2)(f) is the whole of a gain
which accrues to a company or an individual on or after January 1, 2015
on the transfer of property situated in Kenya, whether or not the
property was acquired before January 1, 2015,” says Clause 22 of the
newly enacted Finance Bill.
The tax will be charged “at the rate of five per
cent and shall not be subject to further taxation”. Tax experts estimate
that the KRA could rake in additional Sh9 billion annually from this
tax.
The amendment comes after several past attempts to bring back the tax died on the floor of the House – rejected by the MPs.
The new law provides that a firm acquiring more
than 50 per cent stake in mineral blocks will pay a premium tax,
technically called net gain tax, on the value of the transaction after
deducting attendant costs.
If President Uhuru Kenyatta signs the Bill into
law, deals involving stakes in oil and other mineral blocks will for the
first time be subjected to capital gains tax as the Treasury looks for
ways of collecting more revenue from natural resources.
Wednesday’s amendments to the Finance Bill will
also see withholding tax on dividends from mining operations rise from
10 per cent to 20 per cent.
The proposed law says that where the net gain is
less than 50 per cent and the stake less than 50 per cent, the income
tax payable will be determined by a formula that takes into account the
stake sold and the value of the block.
Passage of the Bill means that the government could
collect a lot more revenue from property sales in the booming real
estate sector.
MPs rejection of the capital gains tax has in the
past been seen to be backed by powerful business interests with huge
presence in the targeted sectors of the economy.
Suba MP John Mbadi supported the amendment, saying
the Jubilee government had lost billions of shillings in revenue
following last year’s rejection by fellow MPs of his attempt to
reintroduce the tax.
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