Investors will from January be taxed 15 percent of the the profit made from investments
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.
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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