Markets

Brokers obligated to collect capital gains tax, KRA says

Investment brokers on the trading floor of the
Investment brokers on the trading floor of the Nairobi Securities Exchange. KRA said it expects stockbrokers to deduct the tax from investors who sold their shares from the beginning of the year. PHOTO | SALATON NJAU | NATION MEDIA GROUP 

The Kenya Revenue Authority (KRA) has maintained that stockbrokers are obligated to collect capital gains tax on sale of shares, citing a section of the law that designates them as agents for the taxman.

Stockbrokers had claimed they need to be appointed collecting agents through a gazette notice to start deducting the levy, which became effective on January 1. KRA, however, says the capital gains tax laws that were suspended nearly three decades ago already designated stockbrokers as collecting agents for stock transactions, maintaining that no new gazettment is required.

“A stockbroker who conducts the transfer of investment shares on behalf of a transferor shall collect and remit tax to the commissioner in accordance with section 35(5),” reads paragraph 18 of the eighth schedule.

KRA said it expects stockbrokers to deduct the tax from investors who sold their shares from the beginning of the year. There have been two trading days since the New Year, with cheques for the first trades expected to be paid out today.

Stockbrokers had sought to shelter themselves from the responsibility of collecting the tax, which is being re-introduced after a lengthy suspension. The taxman said systems used by the brokers to collect stamp duty can also be used to collect the capital gains levy.

Sources within KRA said the taxman will rely on systems of Central Depository and Settlement Corporation (CDSC) to determine the acquisition prices of shares bought after 2005.

For shares bought between 2005 and 1998 the purchase price will be assumed to be the highest prices recorded by specific stocks that year as recorded by the Nairobi Securities Exchange. Shares bought prior to 1998 will be assumed to have been acquired at the highest price recorded in 1998.

By using the highest price to calculate the net gain, KRA said it was reducing the liability of most investors, thus it did not have to make adjustments for inflation.

Capital gains tax is calculated at five per cent of the difference between the selling price and the acquisition price less transaction costs. An investor who makes a loss in the sale of one trade will be allowed to recover the loss in a subsequent sale of shares even when they are not on the same counter.

“Any loss on the investments can be offset so long as it’s the same income stream,” said a well-apprised source within KRA. He said the taxman will be issuing more guidelines on the tax.

The levy will also be charged on Treasury bills and bonds traded in the secondary market. The Central Bank of Kenya will be responsible for collecting this tax. Those who sell land will be required to pay the capital gains tax through their bankers, who will transmit the money to CBK.