Investors to feel the pinch with taxes going up to 15 percent

Investors
selling properties will be subject to higher levies beginning in January
of 2020 after the Treasury defied proposals by
lawmakers.

President
Uhuru Kenyatta signed the Finance Act 2022 last week, changing the capital
gains tax (CGT) rate from the National Assembly’s Finance and Planning
Committee’s earlier recommendation of 10 percent to 15 percent.

The
Finance Act 2022 stated that “Section 34 of the Income Tax Act is
amended—(a)! in subsection (1), by deleting the expression “five percent”
appearing in paragraph (j) and inserting the expression “fifteen
percent” thereto.

The
CGT is the levy that is applied to the profits that investors make when they
sell their investments. It must be paid in the tax year when the investment is
sold.

This
indicates that the rate, which is applied to the net revenues from the sale of
property, will triple starting in January of 2020 as a result of President
Kenyatta endorsing Treasury proposals.

Real Estate Taxes in Kenya

In
2015, the State reinstated CGT at a five percent rate. This action was largely
considered as a test run for a larger plan to improve its performance in
collecting taxes.

Gains
from the first review encouraged proposals to raise the rate to 20 percent and
12.5 percent through the Income Tax Bill 2018 and the Finance Bill 2019,
respectively. These initiatives were unsuccessful.

Analysts
noted how real estate transactions will be impacted by a revision of the CGT
rate to 15%.

In
a remark on the Finance Bill 2022, which has since been signed into law,
consulting company Deloitte stated in April that “it comes as no surprise
that the government sees this as a low-hanging fruit” given the heightened
pressure to raise more tax money.

It
continued, “The notable increase in CGT rate could potentially slow down
investment and transactions in several sectors, including as real estate.”

The
increased tax benefits the Kenya Revenue Authority by increasing revenue
collection, but it disadvantages real estate developers.

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