CAPITAL GAINS TAX IN KENYA

Capital gains tax is a tax that is levied on the gains one gets from the sale of property or securities. The major items under the scope of capital gain tax are:

1.       Gains from the sale of securities i.e. shares

2.       Gains from the sale of land.

3.       Gains from the sale of buildings.

Capital gains tax in Kenya was abolished in the year 1985, later, it was reintroduced in 2002 only not to be successful.

In the budget (ministerial statement) read by the Minister of Finance, Mr. Uhuru recently, we saw the capital gains tax being reintroduced again. This was a wise idea especially considering the vast need of revenue to fund this year’s large budget.

However, one wonders whether the implementation of the same will be effected, bearing in mind that as Kenyans we are known to be very good paper planners.

If successful, the capital gains tax might realize several billions for the treasury from the stock market and the real estate sector each year. The funds generated could be used to fund various development projects in our country and we would all have a prestigious Kenya to live in. That not withstanding, the whole process could turn detrimental to our own economy.

In the stock market as it is right now, the foreign investors account for about 60% of the total investors in the bourse. With the introduction of the capital gains tax, many investors may feel they are loosing much of their gains, and hence leave the bourse to go and invest in other countries where probably there is no capital gains tax, or the rates may be low. This of course will have a negative impact in our stock market and the economy at large.

Come to think of the real estate investors. With the capital gains tax, many may opt out of the sector due to little gains being left for them after the tax. This will lead to a shortage of houses and as a result, property prices will hike only to hurt the consumers the most.

On the other hand, the real estate investors might decide to remain in this lucrative business but hike up the property prices to makeup for the lost profits through the capital gains tax. This also ends up hurting the very same citizen for whom this tax was introduced to help.

Clearly, the issue of the capital gains tax is a tricky one that needs to be approached with a lot of wisdom and tact. I hope the ministry of finance is weighing the options and coming up with the right decision for all stakeholders.