After nearly three decades of being shelved away, the capital gain tax is in motion at a relatively benign rate of 5 per cent as the tax on the gain made on transfer of property which includes land, buildings and marketable securities.
However, many investors are of the notion that the 5 per cent capital gains tax, which took effect in the beginning of the year could hamper investments in property, equities and the country's emerging oil and mining sectors.
(READ MORE: Kenya's president approves 5% capital gains tax)
As a result, the new tax which was re-introduced to raise revenues to meet ballooning recurrent and development expenditure has caused a slowdown in the stock market. For the second day running, trading at the Nairobi Securities Exchange (NSE) declined following a requirement by Kenya’s taxman for stockbrokers to apply the new tax from selling shares.
Nevertheless, the country’s Cabinet Secretary for National Treasury, Henry Rotich said that the new tax which should be paid upon transfer of property and not after the 20th day of the month following in which the transfer was made will not be suspended.
According to Reginald Kadzutu, research analyst at Craft Silicon, foreign investors will not be deterred from investing in the property market as they already have the tax in their countries.
“The capital gain tax is a little bit unclear right now… There is a lot of blurred lines on how it is going to be collected but one thing that is not blurred is that if you sell shares today you made a profit, you are going to surrender 5 per cent of those gains to the government,” Kadzutu said.
However, according to Kenya Revenue Authority (KRA) certain transactions are exempted including income that is taxed elsewhere as in the case of property merchants, issuance by a firm of its own shares and debentures, transfer of machinery, among others.
Nonetheless, the rate of the 5 per cent capital gain tax is much lower and favourable compared to Kenya’s neighbouring countries. In Uganda, the government charges a capital gains tax of 30 per cent on property while Tanzania’s charges 20 per cent on foreigners and 10 per cent on locals.