• Capital Gains Tax (CGT) is basically the tax chargeable on the whole gain which accrues to a company or an individual on the transfer of property situated in Kenya, which liability is placed on the person gaining (attaining profit).

HISTORY OF CGT IN KENYA

  •  CGT was introduced in Kenya in 1975 under the Eighth Schedule to the Income Tax Act payable at the rate of 10% at that time but suspended on 13th June 1985 in order to inter alia promote Real Estate Sector and attract investors into Kenya;
  •  In 2006, there was an attempt to re-introduce CGT through the Finance Bill (2006) but the motion to pass the bill was defeated in Parliament, largely due to the view that tax will increase the cost of land and make housing less affordable to Kenyans;
  • Ultimately, in the wake of Kenya’s growing budgetary constraints, Parliament finally approved the Finance Bill 2014 which re-introduced CGT in Kenya;
  • Re-introduction of CGT purports to broaden the revenue base as one of the ways of financing Kenya’s rising budgets;
  • Further it is believed that since CGT is viewed as a Tax on Wealth, it is a way of increasing revenue base without imposing more taxes on the poor;
  • CGT thus become operational on 1st January, 2015 upon commencement of the relevant sections of the Finance Act 2014

SCOPE OF TRANSFERS UNDER CGT

  • Sales;
  • Conveyance whether by consideration or not;
  • Transfers by gifting are also chargeable;
  • Destruction, loss or extinction of property;
  • Surrender, expiration, forfeiture, or cancellation of shares e.g. on dissolution of a company

COMPUTATION OF CGT

  • The same is payable at the rate of 5% on the net gain made on disposal of property. Its calculated as the difference between the historical costs which the property was bought and the price at which the property is sold excluding any costs of improvement and incidental costs incurred on the property.
  • CGT = (Transfer Value – Adjusted Costs) x 5%

 

SECTION OF FINANCE ACT SECTION AMMENDED IN THE RESPECTIVE ACT PREVIOUS PROVISION AMMENDMENT EFFECT COMMENCEMENT DATE
INCOME TAX ACT, CAP 470 (8TH SCHEDULE)
Section 18 Paragraph 6 is amended by deleting subparagraph (2)(h) and substituting there for a new subparagraph Paragraph 6(2) (h), Income Tax Act indicated that there was no transfer under the CGT with respect to the “transfer of an asset between the spouses or former spouses, as part of a divorce settlement or bona fide separation agreement only The amendment has increased the scope of property that does not fall under the definition of transfer under CGT to include: The transfer of assets: -1. Between spouses;2. Between former spouses as part of a divorce settlement or a bona fide separation agreement;3. To immediate family;

4. To immediate family as part of a divorce or bona fide separation agreement ; or

5.  To company where spouses or spouse and immediate family hold 100% shareholding

There are more transactions that have been exempt from CGT paying regard to family owned properties/assets 1st January, 2015