Brokers want KRA to suspend capital gains tax on stocks

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Stockbrokers have called for the suspension of the law citing need for more time to make changes to their systems in order to accommodate calculation of the tax on transactions.
The NSE said there was no systematic historical data before the mid-1990s while brokers said they also had no records of past transactions that could form the basis for calculations.

Stockbrokers have said it will be impossible to implement the capital gains tax (CGT) in under two weeks even as the taxman maintained it cannot unilaterally suspend the law.

Market players Thursday called for the suspension of the law citing need for more time to make changes to their systems in order to accommodate calculation of the tax on transactions.

The Nairobi Securities Exchange (NSE) said there was no systematic historical data before the mid-1990s while brokers said they also had no records of past transactions that could form the basis for calculations.

In any case, brokers said many investors who transacted in the past decades did not have proper records showing the price at which they had acquired the stocks.

Kenya Association of Stockbrokers and Investment Banks (Kasib) chief executive Willy Njoroge said it would require a lot of time and personnel for the market actors to change their ICT systems, key in the details of investors and calculate the taxes that were due.

“This is a law we cannot afford to implement as it is. At the outset we were opposed to this law, but we are prepared to discuss how we can offset the costs involved in its application,” said Mr Njoroge.

Kasib called for suspension of the law until some of the outstanding issues are resolved. The KRA, however, indicated a base year for the calculation could be agreed upon between them and brokers’ representatives.

READ: KRA lays ground for collection of capital gains tax

Acting deputy commissioner for policy James Ojee conceded it was possible to resolve other teething problems in the application of the CGT for brokers.

He however added KRA could not unilaterally change the date to suit brokers unless with the engagement of the Treasury and Parliament’s Budget Committee.

“What we are committing ourselves to is that while we must implement the law as it comes at the beginning of next January, we will not have our field officers come around with a hammer because we shall resolve the issues that arise,” Mr Ojee told stockbrokers during consultations at the Times Tower head office.

Mr Njoroge said brokers and investment banks have for instance not been collecting personal identification numbers (PINs), which are required for the collection of the CGT.

“It would be a herculean task to collect two million PINs that we don’t have,” said Mr Njoroge.

Dyer and Blair Investment Bank head of risk and compliance David Waweru said guidelines were needed on how to determine the historical cost of securities as some shares had been distributed for free.

The brokers complained their rate of return on capital was already a lowly three per cent, a development that is largely a result of high capital requirements, and CGT’s impact would make matters worse.

Investment banks are required to raise Sh250 million while brokers must hold Sh30 million as minimum capital. Brokers who are allowed to trade on their own behalf – and therefore hold a dealing licence – have to raise Sh50 million as capital.