Kenyans are rated as poor tax remitters for income from property compared to two neighbouring countries. Thirty per cent of Ugandans are rated as property tax compliant followed by Tanzania at 20 per cent.
But only five per cent of Kenyans are compliant, says Kenya Revenue Authority (KRA) manager, Margaret Ogege. Ogege, a Capital Gains Tax (cgt) manage, says capital gains is the amount by which the transfer value of the property exceeds the adjusted cost of that property.
The adjusted cost of property includes all costs incurred with respect to the property, whether at the date of acquisition or costs incurred after the acquisition to enhance the property. Property owners are required to be compliant under the CGT, which was reintroduced last January.
The CGT was reintroduced in Kenya following an amendment in the 2014 Finance Act, which was assented to by the President in September 2014. The CGT had been suspended in Kenya since 1985 to encourage real estate investments and spur growth in the stock market.
There have been previous attempts by the Kenya government to reintroduce the CGT, but without success. In light of the enormous growth being experienced in the real estate as well as a robust stock market, the CGT is expected to help the government meet its revenue targets.
One of the main reasons cited by various stakeholders as to the current reintroduction of CGT is the need for the government to balance an ever-increasing financial budget.
The CGT is applicable on the gains, which accrue to a company or an individual on or after January 1, 2015 on property situated in Kenya, whether or not the property was acquired before January 1, 2015.
The rate for CGT on transfer of property is five per cent. KRA Deputy commissioner in charge of co-ordination, domestic taxes department, James Ojee says the five per cent was not meant to be punitive.
“The ideal situation would be voluntary compliance, but Kenyans are poor taxpayers. We will fix that mischief through public tax awareness campaigns and application of the law,” says Ojee.
He cites double pin ownership as a threat to tax collection and singles out briefcase suppliers as the worst culprits. Only three years ago were government suppliers told to ensure that they were tax complaint. “We will rout them out under the iTax, automation and IFMISS platforms,” he says.