Tribunal decision opens window for capital gains tax refund claims
By the end of December 2022, the sale of unquoted shares, property, as well as intangible assets such as software and business goodwill attracted a lower CGT of five percent.
The Tax Appeals Tribunal has potentially opened a floodgate of refund requests after it ruled that the due date for payment of capital gains tax (CGT) is when a property seller receives full payment, not when the transfer is registered.
This is after the five-bench tribunal ruled against an additional CGT that the Kenya Revenue Authority (KRA) had demanded from Paula Kendi Weru on the gains she made on the sale of land to The Nairobi Islamic Charitable WAKF Registered Trustees.
Ms Kendi received payment in November 2022 and paid a five percent capital gains tax to the taxman in December 2022.
While demanding the additional Sh3,821,582.00 from Ms Kendi, the KRA argued that the transfer date of the property was January 30, 2023, when the registration of the transfer was done, rendering her liable to the enhanced capital gains tax rate of 15 percent.
However, the tribunal ruled in favour of Ms Kendi, throwing a lifeline to those who might have been caught up by the KRA as the country transitioned from the five percent CGT to the current 15 percent starting on January 1, 2023.
Citing paragraph 11A of the Eighth Schedule to the Income Tax Act, the Tribunal held that CGT “shall be on or before the date of application for transfer of the property is made at the relevant Lands office.”
“Accordingly, the Tribunal finds that the appellant (Kendi) in the instant appeal discharged her CGT obligations in compliance with the then applicable law and the respondent erred in determining the applicable tax point for the appellant,” said the Tribunal in a November 8, 2024 ruling.
The ruling by the five-bench tribunal shines the spotlight on some of the additional CGT the KRA demanded from taxpayers who hurriedly finalised payment for the transfer of property and paid CGT at the rate five percent before the December 2022 deadline instead of the tripled rate of 15 percent that became effective in January 2023.
Last year, the KRA demanded more than Sh1.14 billion from shareholders of three companies, including former presidential aspirant, Peter Kenneth, for allegedly underpaying tax paid on sale of shares.
The taxman said these individuals and companies—including 37 former shareholders of Mayfair Bank where Mr Kenneth had a stake—filed CGT returns for the transfer of shares in December 2022 for transactions that were finalised in 2023, therefore under-declaring the taxes.
By the end of December 2022, the sale of unquoted shares, property, as well as intangible assets such as software and business goodwill attracted a lower CGT of five percent.
However, this was tripled to 15 percent effective January as the government went after the booming property market and a flurry of mergers and acquisitions.
At the time, Mr Kenneth sought to absolve himself of any blame, arguing that it was Egypt’s Commercial International Bank, which did not finalise buying the shares from the Mayfair Bank shareholders in time.
“This is a question of, if I sell you my car, you pay me, I give you the logbook, you don’t transfer,” said Mr Kenneth, adding that it is CIB that delayed the transfer after they handed over the documents before the end of the year.
The KRA insisted that the transfer of the final 49 percent stake in Mayfair CIB Bank to Commercial International Bank was finalised on January 31, 2023.
Other deals that came under the KRA’s radar included the acquisition of a majority stake in Harley’s Limited by the Mauritian conglomerate IBL Group, with the KRA demanding Sh520.5 million from shareholders of the Nairobi-based pharmaceuticals distributor.
The KRA argued that the transaction was completed in February 2013.
The KRA also demanded Sh339.4 million in unpaid CGT following the acquisition of IX Africa Data Centre Limited, a technology firm that offers data centre facilities. The shares were bought by Lion Investment Bidco Limited (Lion), an investment firm that is registered in Kenya.
