Real estate and capital markets investors will be spared from the proposed capital gains tax for at least a year or two as the modalities are yet to be formulated.
The National Treasury and the Kenya Revenue Authority have not worked out the specifics of reintroducing the tax category, but the initial draft regulations are expected by March.
Cabinet secretary Henry Rotich told the Star that among issues being reviewed include the sectors to be targeted and the tax rate to be imposed.
“Consultations between the National Treasury and KRA are ongoing but we have nothing tangible as yet. We have to decide on which sectors to be targeted and will have something indicative out by March,” he said.
“I will probably have to clarify on the tax in my budget statement for the 2014/15 financial year,” Rotich said.
The Income Tax Act is to be amended to reintroduce the tax category aimed at squeeze more from wealthy property sellers as part of measures to boost “fairness and equity in the tax system”.
“The Government has initiated a review of the capital gains tax under the Income Tax Act with a view to formulating modalities for its effective enforcement. This will allow wealthier members of our society to also make a token contribution toward our national development agenda,” Rotich said in his June statement.
The capital gains tax was abolished in 1985 to spur investments in properties and securities markets, but the sectors have since grown exponentially. Its reintroduction will see the taxman take a share of gains made whenever land, houses, stocks, bonds and similar assets are sold.
Rotich however recently indicated that the tax may initially target the real estate sector, sparing the capital markets. The regulations being formulated will state the percentage to be charged on capital gains.
According to KRA, real estate and securities sectors have grown “many times over” but tax revenues from these sectors have not increased correspondingly.
“This is where money is, but legislation has to be in place. So, there is not much we can do except to urge Parliament to enact such legislation,” Njiraini said earlier in the year.
Analysts argue that reintroduction of the tax will have to be well thought-out lest it stifles homeownership at a time when the largest segment of the population cannot afford their houses.