According to Grant Thornton Consulting Limited, an Advisory and Tax firm, the absence of Capital Gains Tax since 1985 when it was suspended should be viewed as an incentive which was only aimed at growing the sector.
Senior Manager Linsey Adhiambo argues that the property sector has expanded and is an untapped market which could help reduce the revenue gap for the government.
“I think this is a very good move when you look at progressive taxation because the government is getting back, if I may say, what it has invested on. The government had given these investors incentives and hence were able to invest. So it would only be fair if the government got what it had invested in,” Adhiambo says.
Property owners will be expected to pay 5 percent of the profits they get when they dispose them off, to the Kenya Revenue Authority (KRA).
The move has raised uproar among real estate players with the fear of cost of housing escalation.
“An investor has put an amount into the investment, so they feel like they need to gain out of it and for them to do so, they feel they have to pass it on to consumers,” she said.
Other areas to be affected by the Capital Gains Tax are the minerals, oil and gas sectors and not the money market as earlier alluded.
“We have analysed the new Finance Act and it has been very silent when it comes to shares because the Act just talks about capital gains on property. They haven’t really gone into talking about how it will affect those investing in shares at the Nairobi Securities Exchange,” she says.
KRA has however been urged to clarify on the latter even as it puts in proper implementation mechanism of the capital gains taxation. “We have had laws, but the challenge is always on implementation.”
The re-introduction of the tax now brings Kenya at par with various African countries which are already implementing similar tax.
The move is expected to reduce the habit of speculation in land-buying that has lead to the current high real estate prices which do not reflect the actual value of a property.
Apart from the capital gains under the Income Tax, the Finance Act has also brought changes in the VAT Act and excise duty.