The Kenya Revenue Authority (KRA) says
capital gains tax (CGT) numbers have started looking up after a false
start following its reintroduction in January 2015.
The
CGT, reintroduced as part of measures to broaden the tax bracket, has
faced various legal and administrative hitches resulting in massive
underperformance.
Commissioner-general John Njiraini
has largely attributed the breakthrough to simultaneous payment of the
CGT and stamp duty on property transfers through KRA electronic tax
filing system, iTax.
This followed an order effective
October 1, 2016, but whose application remains patchy due to an
unresolved court case on its constitutionality.
“In
order to address past compliance challenges, KRA commissioned changes
earlier this year through which the payment of capital gains tax as
twinned with payment for stamp duty,” Mr Njiraini said in a statement.
“The
twinning was achieved through a reconfiguration of iTax, such that the
system requires...settlement of both CGT and stamp duty prior to
property transfer.”
The system pushed up CGT revenue in
six months to June by 29 per cent compared with the collections in the
July-December period, the KRA said without providing absolute figures.
The
Law Society of Kenya (LSK) successfully challenged the advance CGT
payments, in a High Court ruling on March 14, arguing it was
unconstitutional to compel a property buyer to pay tax before she gains
full possession.
The LSK argued some expenses may be left out when CGT is charged resulting in higher taxation.
KRA,
however, appealed the ruling by Justice John Mativo on April 4, citing
heavy losses as it had already linked payment system for CGT to stamp
duty. The case is pending.
“The KRA had its best
intention (to increase compliance), but the LSK thought otherwise and
they went to court,” Grant Thornton tax director Samuel Mwaura told the
Business Daily in an interview, keen not to discuss the substance.
“So, the operation still remains the same: declare (CGT) when you want to declare.”
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