The Kenya Revenue Authority (KRA) says capital gains tax (CGT) numbers have started looking up after a false start following its reintroduction in January 2015.
The CGT, reintroduced as part of measures to broaden the tax bracket, has faced various legal and administrative hitches resulting in massive underperformance.
Commissioner-general John Njiraini has largely attributed the breakthrough to simultaneous payment of the CGT and stamp duty on property transfers through KRA electronic tax filing system, iTax.
This followed an order effective October 1, 2016, but whose application remains patchy due to an unresolved court case on its constitutionality.
“In order to address past compliance challenges, KRA commissioned changes earlier this year through which the payment of capital gains tax as twinned with payment for stamp duty,” Mr Njiraini said in a statement.
“The twinning was achieved through a reconfiguration of iTax, such that the system requires...settlement of both CGT and stamp duty prior to property transfer.”
The system pushed up CGT revenue in six months to June by 29 per cent compared with the collections in the July-December period, the KRA said without providing absolute figures.
The Law Society of Kenya (LSK) successfully challenged the advance CGT payments, in a High Court ruling on March 14, arguing it was unconstitutional to compel a property buyer to pay tax before she gains full possession.
The LSK argued some expenses may be left out when CGT is charged resulting in higher taxation.
KRA, however, appealed the ruling by Justice John Mativo on April 4, citing heavy losses as it had already linked payment system for CGT to stamp duty. The case is pending.
“The KRA had its best intention (to increase compliance), but the LSK thought otherwise and they went to court,” Grant Thornton tax director Samuel Mwaura told the Business Daily in an interview, keen not to discuss the substance.
“So, the operation still remains the same: declare (CGT) when you want to declare.”