The Treasury has reversed its decision to charge Value Added Tax (VAT) on asset transfers into Real Estate Investment Trusts (Reits) and asset backed securities, boosting the prospects of the two alternative financing plans that have failed to gain much traction in Kenya over the years.
The government last year reinstated the VAT charge on the transfers in amendments to the VAT Act contained in the Tax Laws Amendment Act 2020, a move that analysts said would slow down the uptake of Reits in Kenya.
In his budget speech last Thursday, Treasury CS Ukur Yatani announced the removal of the tax charge, saying that these vehicles are key in financing real estate investments at a time when the sector has found it harder to access credit from ordinary channels.
“In order to entrench the benefit of affordable housing including specialised facilities like student hostels, it is imperative to develop innovative financing alternatives,” said Mr Yatani.
“In this regard, I propose to exempt from VAT asset transfer into the Real Estate Investment Trusts and Asset Backed Securities.”
Student hostel developer Acorn Holdings has already issued Reits for its hostels in Nairobi, whose under-subscription showed that there is still lukewarm enthusiasm for the emerging investment vehicles hence the calls for incentives.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
