The KRA headquarters at the Times Tower in Nairobi. PHOTO | FILE
The reintroduction of capital gains tax (CGT) in January 2015, 30 years after it was suspended, quickly became the dominant storyline of the past year, culminating in a lawsuit filed against the government by stockbrokers.
Opponents of the new tax, effective until last Thursday for shares but still applicable for property, argued that it would stifle the growth of the local equities market which was coming off a three-year bull run that saw market capitalisation surpass the Sh2 trillion mark, alerting the government to the potential tax revenues it could generate.
Potentially the biggest losers would be the investors who had entered the market through initial public offerings of companies such as Safaricom, Co-operative Bank, Britam and ScanGroup, given that the shares of these companies had more than doubled in price since listing.
“In order to remain competitive and attract money to its capital markets, CGT cannot be practically applied to a stock exchange,” argued Kestrel Capital chief executive officer Andre DeSimone.
“In no modern frontier Sub-Sahara African market is CGT applied to stock exchanges. Uganda, Tanzania, Rwanda, Mauritius, Nigeria, Ghana, Ivory Coast, Zambia, Botswana and Namibia have CGT on property and private share transfers, but not on listed securities transfers,” he said.
The dispute came to a head on February 20—the date of the first due remittance of the tax— when stockbrokers issued a threat to halt trading at the bourse for a month, citing fear of breaking the law.
The threat was only shelved after intense consultations with the Kenya Revenue Authority (KRA) and the Capital Market Authority.
On the other hand, there was limited if any noise coming from the property sector on the new tax compared to that from the equities sector.
Property dealers mainly sought further clarification on the more technical aspects of the tax, asking tax experts to clear up grey areas without resorting to legal battles.
Their main concern centred on the inflationary factor in price of land, which has risen astronomically in the last decade.
They called on the KRA to adjust the buying price for inflation (indexing), which would revise the buying price of the land to reflect both the developments made on it and the inflation of the currency over the 30- year period
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