KRA to deny tax waiver on property transfer to reduce evasion

The enhanced iTax system will now reflect exemptions in transactions that attract Capital Gains Tax

In Summary

• According to KRA Domestic Taxes Department commissioner Elizabeth Meyo, the administration of the Capital Gain Tax has from moved from a manual system to fully digital, a move expected to minimise tax avoidance.

• The new changes in administration will be rolled out to transactions that will apply after revision of the CGT current rate of five per cent to 12.5 per cent.

KRA headquarters.
KRA headquarters.
Image: FILE

Kenya Revenue Authority has said it will deny tax exemptions in some transactions involving the sale of property transfer.

This follows an enhancement made on the iTax system through the development of an exemptions function, to monitor declarations on capital gain tax (CGT) transactions.

According to KRA Domestic Taxes Department commissioner Elizabeth Meyo, the administration of the tax head has from moved from a manual system to fully digital, a move expected to minimise tax avoidance.

“Through the system enhancement, all property transfer transactions declared as exempt from CGT will go through a verification and approval process. This process will regulate exemption declarations by the transacting parties,” Meyo said.

“KRA shall grant or deny CGT exemptions depending on whether or not the transactions meet the exemption guidelines provided for in the Income Tax Act.”

CGT is a tax chargeable on the transfer of a property such as land and buildings and is payable by the party transferring the property.

However, some transactions including land whose value is not more than three million shillings are exempted from CGT.

Agricultural property having an area of less than fifty acres and property which is transferred or sold for the purpose of administering the estate of a deceased person is also not subjected to the tax, leading to less revenues to the tax authority.

Within its first month of implementation, KRA has said the enhancement has boosted KRA’s collection on CGT in July to Sh580 million against a target of Sh391.26 million, translating to a revenue performance of 151 per cent on the CGT tax head.

The new changes in administration will be rolled out to transactions that will apply after revision of the CGT current rate of five per cent to 12.5 per cent.

The rate was proposed in the 2019/2020 Budget Statement and is currently under public participation during Parliament recess.

KRA projects to realise more revenue from the policy which will be effective from October 1, if passed.

A memorandum calling to abolish the increment of the tax policy claimed the tax head may be difficult and complex to administer.

The petitioners also said potential savings and efficiency implications that arise from exemptions may not have a positive impact on the economy.

The administrative challenges had resulted in numerous court cases filed against KRA by Kenya Association of Investment Banks, Kenya Bankers Association and Law Society of Kenya, it stated.

In 2017, KRA twined CGT with stamp duty in the system, which made it mandatory for transacting parties to declare CGT before paying stamp duty.