Stockbrokers and the taxman are headed for renewed battle after the intermediaries declared they cannot comply with an order to submit capital gains tax (CGT) supposedly collected since January this year.
According to lobby Kenya Association of Stockbrokers and Investment Banks (Kasib), the Capital Markets Authority (CMA) had in February proclaimed that the tax would not be claimed from the intermediaries but would directly be applied to individual investors.
The brokers argue the position that the submission would fall on the investors had been expressed by the National Treasury.
The market intermediaries said it was impossible to comply with the order from the Kenya Revenue Authority (KRA) since they had not been withholding the tax due from investors.
KRA wrote to individual brokers and investment banks on April 30 asking them to pay within 14 days.
“Stockbrokers have been left in a state of confusion and disarray,” said Kasib chief executive Willie Njoroge.
The Treasury is reported to have shifted the burden of remitting the CGT from stockbrokers to investors with the promise of a legislation to confirm the shift was in the works, and would be completed by the next financial year starting July.
“Please note that to-date we have not received any returns or capital gains tax on transfer of investment shares conducted with effect from January 1, 2015 as required in Paragraph 18 of the Eighth Schedule to the Income Tax Act,” said the letter from the commissioner for domestic taxes, Alice Owuor.
Failure to comply with the order “will necessitate enforcement action without further reference to you,” she said.
Mr Njoroge on Tuesday said Kasib membership had not complied with the understanding that they were not responsible for the collection.
“On February 19, 2015, the Capital Markets Authority assured members that the responsibility of computing and remitting CGT shall be left to the individual investors and not the stockbrokers,” said Mr Njoroge.
Mr Njoroge noted that the Treasury secretary Henry Rotich had been widely quoted saying the Treasury, the KRA and the brokers had agreed the task of accounting for the tax be left to investors.
“Based on these discussions and assurances, Kasib members have been advising investors to remit CGT directly to the KRA,” said Mr Njoroge.
Kasib and KRA have been locked in various litigations over how the tax should be administered. This has come at a cost to the market which slipped below 5,000 points last week for the first time since December as foreign investors continued disposing of large caps at the NSE.