Improved performance in capital tax gains and pay-as- you- earn revenue, helped offset a dismal performance in the collection of corporation income tax which was negatively affected by reduced tax remittances by sectors such as finance, manufacturing, and ICT.
Taxes collected from financial deals including sale of land, houses, and shares in privately held firms grew by nearly 50 percent to a record Sh8.38 billion in the financial year that ended June,30,2024, buoyed by a tripled rate of the levy.
Capital Gains Tax (CGT) is the levy investors pay on profits—or gain—made when they sell, give away or dispose of an asset, such as shares or property.
Fresh data by the Kenya Revenue Authority (KRA) shows that collections from the CGT increased by 49.5 percent from Sh5.606 billion realised in the previous fiscal year.
The collections were buoyed by increasing of the levy from five percent to 15 percent in the Finance Act 2022, hitting Kenya's real estate and private equity deals.
“Capital Gains Tax registered a 49.5 percent growth after collecting Sh8.381 billion against a target of Sh7.710 billion. This signifies a performance rate of 108.7 percent, after collecting a surplus of Sh671 million,” said KRA Commissioner General Humphrey Wattanga.
Improved performance in CGT and pay-as- you- earn revenue, helped offset a dismal performance in the collection of corporation income tax which was negatively affected by reduced tax remittances by sectors such as finance, manufacturing, and ICT. All three are income taxes.
Parliament approved the increase in CGT to 15 percent before the August 9 General Elections of 2022, and allowed KRA to start collecting higher taxes starting January last year. In the fiscal year ending June 2023, KRA only had six months to collect the higher CGT.
The tax is paid on the gain—or profit—investors make after excluding costs associated with the property such as upgrade, legal fees, and mortgage interests, and not the value of the asset itself.
There were fears that the surge in CGT would dampen the real estate sector which has already endured numerous downturns.
Provisional data released by the National Treasury showed that collection of CGT in the period between January and March last reduced to Sh3.28 billion compared to Sh3.76 billion in the same period in 2022, pointing to a reduction in property deals.
However, data from the KRA shows the Sh5.606 billion collections of CGT in the year ending June 2023 was an improvement from Sh4.350 billion in the previous period.
Firms and households disposing of land, buildings, and unquoted securities such as shares in private-held companies are charged five percent CGT on net proceedings from the transactions.
Buyers, on the other hand, are charged a stamp duty at the rate of four percent of the value of the property in major towns and two percent in rural areas, while the rate of unquoted shares is one percent.
In the condemned Finance Bill 2024, there was a proposal to reduce the CGT rate from 15 percent to five percent for the transfer of investments, provided that the Nairobi International Financial Centre Authority certifies the investment to be at least Sh3 billion in at least one entity incorporated or registered in Kenya within two years.
