NSE brokers fail to deduct capital gains tax on deals
Brokers on the trading floor of the Nairobi Securities Exchange. The bourse witnessed heavy trading last month as investors sought to avoid the new tax liability. PHOTO | FILE |
What you need to know:
Stockbrokers said they were yet to be contracted by the taxman as capital gains tax collecting agents and were therefore paying the full transaction amounts to investors.
Top KRA officials were holed up in a meeting over the matter on Friday and promised to issue a clarification Monday.
Stockbrokers have been calling for suspension of the tax till consultations on its implementation are concluded.
Confusion reigned at the Nairobi Securities Exchange on the first trading day of 2015 when the new capital gains tax regime was supposed to take effect.
Stockbrokers said they were yet to be contracted by the taxman as capital gains tax collecting agents and were therefore paying the full transaction amounts to investors.
“According to the law, tax was supposed to have been implemented. However, as to how, we have no communication,” said Kenya Association of Stockbrokers and Investment Banks (Kasib) chief executive Willie Njoroge.
“At the end of the day it is not stockbrokers who are paying but the investors who are to declare to Kenya Revenue Authority (KRA) their gains and pay,” he said.
Most investors had anticipated that stockbrokers would withhold the tax for onward transmission to the taxman. KRA had in the past said it expected brokers to be collecting agents as was the case in a previous tax regime.
Top KRA officials were holed up in a meeting over the matter on Friday and promised to issue a clarification Monday. “KRA has not given guidelines so we are waiting,” said Geoffrey Odundo, managing director of Kingdom Securities.
Capital gains tax is being reintroduced by the government after it was suspended in 1985.
It will be charged at five per cent of the difference between the selling price and the acquisition price, less any transactional costs incurred.
The deadline for submitting the tax is 20th of every month.
Stockbrokers have been calling for suspension of the tax till consultations on its implementation are concluded.
“In our research we have not come across any jurisdiction where the stockbroker is the one who collects the tax for the government,” said Mr Njoroge.
Failure to contract stockbrokers as agents could make the tax administration difficult given the taxman has not set an exemption based on the size of transactions.
This means no matter how small the gain the investor would have to make physical submissions to the taxman.
KRA guidelines
How foreign investors who make capital gains will submit their tax to KRA is also not clear.
As per KRA guidelines, a taxpayer will do a self-assessment to determine the gain upon which tax will be computed. Other issues raised by the brokers include the investment they will have to make to improve their software systems for them to deduct and retain the money.
KRA has also been asked to set a cut off year to be used for marking acquisition prices in order to ease the implementation process.
Some investors, especially those with exposure on many counters, may not remember the price at which they bought the shares.
KRA has said it could not unilaterally change the date unless the Treasury and Parliamentary Budget Committee approve the move.
On Friday 14,368,900 shares worth Sh475 million were traded. NSE witnessed heavy trading last month as investors sought to avoid the tax liability. Long-term investors were said to have been moving shares across portfolio in order to set a new acquisition price and reduce their tax exposure.
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