Capital gains tax takes effect

Brokers on the trading floor of the Nairobi Securities Exchange. From January 1, 2015 any gains made from sale of shares or property will attract a 5 per cent tax. FILE PHOTO | SALATON NJAU |  NATION MEDIA GROUP

In Summary

• Regime that had been put in the freezer finds new life 30 years later.
• You will now be required to remit 5 per cent of the profit made on shares or property to KRA.

By JOSHUA MASINDE
More by this Author

You will, beginning Thursday, be required to remit five per cent of the profit you make after selling property or company shares at the Nairobi bourse as the capital gains tax takes effect.

The tax was re-introduced in Kenya in August last year three decades after it was abolished in 1985.

Investors have remained jittery over enactment of the charge and the effect it will have on their investments going forward.

NOT AS HUGE

Home Afrika chief executive Njoroge Ng’ang’a on Wednesday told the Nation that though 5 per cent charge is not as huge as is the case with other African countries, its application is expected to cause a slowdown in the property market.

“Initially, we’ll experience some slowdown as the market adjusts to the tax and the process of implementation going forward. But, there should be stability after about six months or so,” Mr Ng’ang’a told the Nation by phone.

Already, players in the capital markets have expressed concerns on the implementation of the tax. Faida Investment Bank chief executive, who also doubles as vice chairman of the NSE Bob Karina had expressed uncertainties emanating from the market on whether or not the tax will be applied on securities and the manner in which it is to be implemented.

Nairobi Securities Exchange acting chief executive Andrew Wachira said by phone; “We are certain there’s going to be an effect but I don’t want to hypothesise how the impact will be like.”

The Capital Gains Tax (CGT) was abolished in 1985 to encourage investment in the two areas.

RAISE REVENUES

In August last year, Kenya reintroduced it on the net gains accruing from transactions in property and securities like bonds and shares.

Uganda charges a CGT of 30 per cent on property while Tanzania’s is at 20 per cent on foreigners and 10 per cent on locals. Shares are exempted.

The regime takes effect as part of the government’s plan to raise revenues to meet ballooning recurrent and development expenditure, and to support the devolved system of administration.

The government has set an ambitious revenue collection target of Sh1.18 trillion this financial year, putting pressure on the taxman to meet the mark.

“While the rate of capital gains tax has been established at 5 per cent for most capital transactions, it appears that the mining, oil and gas sectors will be taxed at 30 per cent or 37.5 per cent depending on the company’s country of residency for tax purposes,” Africa Oil said in September last year in a response to the re-introduction.

A number of tax experts have indicated that securities should be exempted from the levy in the meantime as the market is not as developed as that of other countries like South Africa. However, application on the property sector should take effect as planned.

“Once the NSE becomes more active and many companies are listed, then the tax on shares can be introduced,” Mr Parag Shah, a partner at Grant Thornton, a tax and audit firm, said.

Some analysts have also indicated that with the tumbling of oil prices at the international market, the government should “backtrack on plans to introduce a new capital gains tax on oil assets”.

“With small independents unlikely to have the resources of larger oil companies for development projects, the CGT might impede the development of oil and gas in Kenya,” Razia Khan head of global research, Africa region at Standard Chartered Bank said in a report titled Kenya — Growth optimism and security.