Taxes collected on transfer of real estate and shares in privately-held firms for nine months through last March rose 8.11 percent, pointing to a modest uptick in earnings from property deals ahead of tripling of the charges.
Tax receipts from property transactions amounted to nearly Sh12.53 billion between July 2021 and March 2022 compared with Sh11.59 billion in the same period in the prior year, according to latest data from the National Treasury.
Firms and households disposing of land, buildings and unquoted securities such as shares in privately-held companies are charged five percent capital gains tax on net proceedings from the transactions.
Buyers, on the other hand, are charged a stamp duty at the rate of four percent of the value of property in major towns and two percent in rural areas, while the rate for unquoted shares is one percent.
Defaulters of the CGT are fined a 20 percent penalty of the tax due.
The analysis of the Treasury data shows the collections on property sales have risen modestly since Treasury secretary Ukur Yatani enforced the Stamp Duty (Valuation of Immovable Property) Regulations in August 2020.
The property tax receipts in the review period, for instance, were 6.98 percent more than Sh11.71 billion from July 2019- March 2020 before the current valuation rules came to force.
The rules empower the chief government valuer to appoint registered private practitioners for a renewable three-year period to conduct a property valuation on behalf of the government. This was in a bid to shore up property tax receipts by reducing the turnaround period.
The CGT and stamp duty levies are a major source of revenue for the government.
The CGT will triple to 15 percent from next January after lawmakers backed the Treasury’s proposal before the House adjourned indefinitely ahead of August 9 polls despite protest from industry captains and tax experts.
“Tripling that [CGT] rate from five to 15 percent is killing the real estate sector. That will make investment in our country more unpredictable, we will mess up our ease of doing business index and slow the growth of the economy,” Philip Muema, a partner at Andersen Kenya, a tax and business advisory firm, said on phone.
The real estate sector has endured a sustained downturn in recent years with developers struggling to service loans on the property, resulting in bankers hiring auctioneers to forcibly sell houses to recover accrued debts.
Latest industry data by the Central Bank of Kenya, for example, shows fresh credit to the real estate sector rose 3.60 percent to Sh460 billion in the year period through March 2022, while non-performing bumped 11.35 percent to Sh78.5 billion.