Taxes from financial transactions on the sale of land, houses, and shares in privately held firms have grown for the first time since the rate was tripled. PHOTO | SHUTTERSTOCK
The Kenya Revenue Authority (KRA) suffered a double-digit drop in revenue collections from the sale of land, houses, and shares in privately held firms in the first half of the current financial year, the latest official data shows.
Taxes from financial transactions in real estate and shares in private companies amounted to Sh9.16 billion, a 16.53 percent decline compared with a similar period a year earlier when receipts stood at Sh10.98 billion.
Treasury data analysis shows the receipts in the July-December 2023 period bucked a trend of double-digit growth in the previous two years.
This came despite the taxman tripling the capital gains tax (CGT) rate three-fold to 15 percent, compared with previous years when the rate was five percent of net proceeds from the sale of property and shares in privately-held firms.
Analysts linked the nearly Sh1.82 billion contraction partly to some developers holding onto the property, awaiting an increment in land and house prices to levels where the CGT will not erode targeted margins.
“In markets that have reached stagnation or low growth, sellers are either holding off selling in hopes for price growth or accepting a hit from the higher CGT tax,” Sakina Hassanali, head of development consulting and research at HassConsult, said.
“Developers have, however, passed CGT taxes onto buyers in high growth markets and markets that attract foreign currency [largely the US dollar].”
Developers and land owners disposing of property in US dollars booked double-digit forex gains when the cash was converted into local currency. This is after the shilling depreciated 11.31 percent in the six months through December 2023, for instance.
The KRA enforced the 15 percent CGT rate from January 2023 deductions, following after the lawmakers approved the Finance Act, 2022. Buyers of real estate, on the other hand, pay stamp duty at the rate of four percent of the value of property in major towns and two percent in rural areas.
