Courts reject bid to tax banks on asset auction

Bankers are set to keep all the property auction millions after the appellate court rejected efforts to reintroduce regulations that would have forced the lenders to pay capital gain tax.

The Court of Appeal, in a ruling delivered last week, upheld a decision of the High Court that had quashed regulations requiring banks to pay capital gains tax (CGT) on land sold to recover bad loans.

The judges agreed with the Kenya Bankers Association (KBA) that the High Court decision was unfair.

The CGT is provided for in the Income Tax Act but it was suspended in 1985 only to be re-introduced in the Finance Act, 2014, with the effective date being January 1, 2015.

KRA later discontinued the manual payment of both stamp duty and CGT and required the simultaneous payment of both taxes online.

Banks, however, challenged the regulations arguing that asking them to pay CGT was unreasonable and unfair, because lenders are not the owners of the property.

Last week, appellate judges William Ouko, Hannah Okwengu and Fatuma Sichale agreed with High Court’s George Odunga that KBA was not given an opportunity to present its points of view, after the taxman re-introduced the tax.

“The unilateral decision to demand that the respondents’ members collect CGT from its various borrowers by twinning the payment of CGT and Stamp Duty was clearly unfair and irregular,” the judges ruled while dismissing the appeal filed by the Kenya Revenue Authority.

“In our view, to place a chargee and a chargor on equal footing will in effect blur the distinction between a chargee and a charger.”