Kenya Revenue Authority (KRA) defines Capital Gains Tax as a tax chargeable on the whole of a gain which accrues to a company or an individual on or after 1st January, 2015 on the transfer of property situated in Kenya, whether or not the property was acquired before 1st January, 2015.

Capital Gains Tax was first introduced in Kenya in 1975 but later suspended in 1985.  Reason for suspension in 1985 was to allow for the growth of property market (including Investment Shares).

Finance Act 2014 re-introduced Capital Gains Tax with effect 1^st January, 2015. Rationale for the re- introduction of Capital Gains Tax being:

1. The principles of Equity and Fairness in Kenya tax system
2. Article 210 Kenyan Constitution 2010- No tax or licensing fee may be imposed, waived or varied except as provided by legislation.
3. The growth of the property and equity market in the past decade

Capital Gains Tax is on gains arising from sale of property.  This include land, buildings, stocks, bonds and shares.

Nonetheless, the Finance Act 2015 abolished both capital gains tax (CGT) of 5 % and the withholding tax of 0.3 per cent on all securities traded on the NSE with effect from 1, January 2016. This was meant to:

1. Restore investor confidence,
2. Boost trading and
3. Position the country as an attractive investment destination in Africa.

However, securities traded off the exchange through the Over-The-Counter market will attract a capital gains tax of five per cent.

How to compute Capital Gains Tax in Kenya

Net gain is the excess of the transfer value over the adjusted cost of the property that has been transferred.

Transfer value is the consideration for the transfer less incidentals cost such as legal fees, advertisement, agents commission, valuation fee and others.

Adjusted cost for the property is the cost of acquisition, other relevant incidental costs such as the legal fee, valuation fee survey fee and maintenance charges.

The rate of tax is 5% of the net gain.

Thus CGT= Net gain x 5%

Capital Gains Tax in other Countries

It is not only Kenya that charges Capital Gains Tax.

Uganda: CGT rate of 30% applicable on business assets.

Tanzania: Capital gains tax is at corporate tax rate of 20%

South Africa is 40%

So CGT is the lowest at 5% in the region

Who is eligible?

The tax is to be paid by an individual or a corporate body transferring the property.

A transfer takes place:

1. Where a property is sold, exchanged, conveyed or disposed off in any manner (including by way of gift);
2. On the occasion of loss, destruction or extinction of property
3. On the abandonment, surrender, cancellation or forfeiture of, or the expiration of rights to property.

Exemptions and Exclusions of Capital Gains Tax in Kenya

The following transactions are exempted:

1. Issuance by a company of its own shares and debentures
2. Transfer of machinery including motor vehicles
3. Disposal of property for purpose of administering the estate of a deceased person
4. Vesting of property in the hands of a liquidator or receiver
5. Transfer of individual residence occupied by the transferor for at least three years before the transfer
6. Compensation by Government for property acquired for infrastructure development
7. Transfer of asset between spouses as part of divorce settlement
8. Sale of land by an individual where the proceeds is less than Kshs. 3,000,000
9. Sale of agricultural land by individuals outside gazetted townships where the property is less than 50 acres
10. Exchange of property necessitated by : incorporation, recapitalization, acquisition, amalgamation, separation, dissolution or similar restructuring involving one or more companies which is certified by the Cabinet Secretary to have been done in the public interest
11. Transfer of investment shares by retirement benefits scheme registered with Commissioner

Nevertheless, the transferor of property must get approval from the Kenya Revenue Authority (KRA) to avoid paying CGT on these transactions.

What documents/information will be required?

1. Completed CGT form by the seller
2. Copy of Sale/Transfer Agreement of the property
3. Proof of the incidental costs related to the acquisition and transfer of the property
4. A copy of the title deed or ownership document for the property
5. Report from a registered valuer for property transactions between related parties
6. Any other document/information that the Commissioner may require

When to Pay Capital Gains Tax

Paragraph 11A of the Eighth Schedule of the Income Tax Act provides that the due date for Capital Gains Tax is on or before the date of applying for the transfer of property at the Lands Office.

Pursuant to this provision KRA issued a public notice requiring that the payment of stamp duty and capital gains tax must be initiated through the iTax platform and paid before property is transferred simultaneously with the payment of Stamp Duty effective 1st October 2016. Full implementation begun on the 30^th of January, 2017.

The Law Society of Kenya (LSK) filed a constitutional petition (No. 39 of 2017) The Law Society of Kenya v The Kenya Revenue Authority & the Attorney General to challenge that requirement by KRA.

On 14th March 2017, the High Court of Kenya held that the requirement under the Income Tax Act to pay capital gains tax prior to application for registration of transfer of a property at the Land Office is unconstitutional.

The effect of this ruling is that the KRA cannot demand payment of CGT before registration of the transfer in favor of the transferee.

How to pay Capital Gains Tax in Kenya

Step By Step Guide: Payment of CGT Through iTax

Go to the iTax portal via the KRA website

• Log-in using your credentials: Login ID/PIN, then Password
• Go to File Returns online
• Go to Payments
• Go to Payment Registration- The rows will populate with your details. Click Next

Fill in other rows not populated as follows:

• Tax Head – Income Tax
• Tax Sub Head: (0110) Capital Gains Tax (CGT)

Ignore the dialogue box- “No Liability details found for selected Tax Obligation”

By clicking- Ok 

• Payment Type: Self-Assessment Tax
• Tax Period: Year & Month
• Payment Details: Amount to be paid- Insert the amount
• Mode of Payment: Cash or Cheque or RTGS
• Receiving Bank: Select any bank from the list provided
• Submit

Note: An e-slip with a Payment Registration Number (PRN) will be generated.

• Use the e-slip together with the manually filled form downloaded from the website to pay at the bank.
• The CGT forms then should be surrendered to any nearest KRA office with attachment of proof of payment.

Consequences of non-payment and late payment of Capital Gains Tax

Non-payment of Capital Gains Tax is a criminal offence under section 107 of the Income Tax Act. In addition, KRA may recover the outstanding amount by suing the taxpayer under Section 39 of the Tax Procedures Act.

Late payment attracts a penalty of 20% of the tax due and interest at 1% per month for the period that the tax remains unpaid. The interest period commences on the date the tax was due and ends on the date the tax is paid. (section 38 of the Tax Procedures Act).