A prominent businessman has won a Sh417 million tax dispute against the taxman over the sale of shares, offering hope to other high-net-worth investors facing hefty capital gains tax (CGT) demands after recent law changes.
The High Court overturned a Tax Appeals Tribunal decision that had allowed the Kenya Revenue Authority (KRA) to collect the additional amount from Rupen Mulchand Haria after he sold his stake in pharmaceutical distributor Harleys Limited nearly three years ago.
The dispute arose from the transfer of Mr Haria’s 5,910,000 shares in Harleys to Westlands Heights Limited—a Mauritian holding company—on December 30, 2022. He paid Sh260.2 million in CGT at the prevailing rate of 5 percent, just before the rate tripled to 15 percent in January 2023 under the Finance Act 2022.
The tribunal had agreed with KRA’s position that the CGT “tax point” is when the transfer is registered—in this case, January 4, 2023, when the Lands Registry stamped the sale agreement, thus attracting the higher 15 percent rate.
But Justice Patrick Otieno ruled that for share transfers, the tax point is the date the shares are legally and economically transferred through sale and payment. This, he said, was December 30, 2022, before the higher rate came into effect.
“The subsequent administrative act of stamping the document, delayed by a third party awaiting a new regime of the law attracting a heavier burden, did not alter the date of the actual transfer for tax purposes,” said Justice Otieno.
The ruling is a reprieve for wealthy individuals caught in similar disputes. The change in CGT rate has triggered bruising battles over deals worth at least Sh11 billion, with KRA demanding more tax on transactions concluded just before the change.
Several high-profile figures—including Nice & Lovely founder Paul Kinuthia, textile magnate Jaswinder Bedi, politician Peter Kenneth and lawyer Ambrose Rachier—paid CGT at the rate of five percent in late 2022, only for KRA to demand more, arguing the transfers were completed in 2023.
Mr Kinuthia’s Cellini Holdings sold land for Sh150 million. KRA insists the transfer date in April 2023 makes it liable for 15 percent. The dispute still before the tribunal. On April 4, the tribunal dismissed an appeal by a Bedi-associated company over CGT on a Sh862 million property sale in Nairobi’s Industrial Area, siding with KRA on both the higher tax rate and exchange rate adjustments.
At the tribunal, Mr Haria had argued that CGT in Kenya is self-declaratory, meaning that it is payable upon executing the sale, not registration. This, he said, helps to avoid punitive delays.
The decision emphasises that income tax assessments must relate to the period when the gain was realised, not when administrative formalities are completed.
For investors who rushed to beat the January 2023 deadline but faced bureaucratic delays, it offers a strong precedent against KRA’s backdated demands.
