KRA loses bid to tax capital gains in advance

Mr John Njiraini, KRA commissioner-general. FILE PHOTO | NMG
 

The Kenya Revenue Authority (KRA) has lost its bid to suspend a court decision that barred it from collecting capital gains tax (CGT) before parties have completed the transfer of property on sale.

Justice John Mativo declined to suspend his earlier ruling that had declared KRA’s demand for CGT before property transfers are completed as illegal, citing the taxman’s lack of urgency in filing of an appeal.

The judge had in March found that paragraph 11 A of the Eighth Schedule of the Income Tax Act infringes the rights of both buyers and sellers in its demand that capital gains tax be paid before completion of asset sales.

KRA immediately asked Justice Mativo to suspend his decision to grant it time to challenge the decision in the Court of Appeal.

But three days later, the taxman instead filed an application asking for a 30-day window to reconfigure its revenue collection systems to allow payment of CGT upon completion of the asset transfer process.

Less than a month later, the KRA told Justice Mativo that it was abandoning its application for a 30-day window, but was instead seeking to suspend the March judgment until it moved to the Court of Appeal.

“The remedy being a discretionary one, the conduct of the KRA is a relevant factor in determining whether or not to allow the application. It will be recalled that the applicant herein filed an application seeking 30 days to comply with the court decision,” the judge said.

“In fact, the applicants’ counsel informed the court that they were discussing ways of resolving the matter with the petitioners’ counsel. During the pendency of the said application, the applicant herein changed its mind and instituted the present application. To me, the said conduct leaves a lot to be desired.”  

READ: KRA fights capital gains tax hitch

Justice Mativo added that his authority over the matter ended after he delivered a judgment in March, and he could therefore not revisit the decision to vary his findings.

KRA, he said, should have made a request for suspension while highlighting its case before he delivered a judgment.

“To me, it would have been appropriate for the applicants to advance the argument during their closing submissions at the hearing of this case, and urge the court in the event of finding for the petitioners to grant a suspension of the declaration of invalidity and cite the consequences of the declaration and purpose of the suspension,” he added.

The judge in March ruled that allowing the KRA to collect CGT before asset transfer is completed could hinder transactions as some buyers and sellers may not have the financial muscle to pay the tax before completing asset sales.

KRA had argued that the disputed regulation was only added to make clear when capital gains tax is due, and that it neither contradicted other sections of the Income Tax Act nor the Constitution.

Attorney-General Githu Muigai argued that the Law Society of Kenya had not specified how exactly the disputed law infringed on the public’s rights.