KRA should provide certainty over CGT

In Summary

• In June, government raised the rate of Capital Gains Tax from 5 to 15 percent

• The 15 percent CGT rate is still globally competitive but investors need assurances that it will not unexpectedly be changed again

Image: OZONE

The Budget in June raised Capital Gains Tax from 5 to 15 percent. Various commentators, including Knight Frank (see P12), have warned that this could disrupt investment in Kenya.

In reality, CGT is still favourable but the Kenya Revenue Authority and the Treasury need to manage it in a sensible and predictable way.

CGT in neighbouring Uganda is 30 or 40 percent (depending on whether you are a company or an individual) so Kenya is far more competitive than its neighbour. In the UK, it is between 18 and 28 percent so Kenya is still competitive.

But investors need a predictable investment climate. They will run away if the goalposts constantly keep being moved.

In the UK, there are annual allowances and CGT is only paid on the inflation-proofed profit – the difference between the inflation-adjusted cost of the investment and the sale price.

So Kenya needs certainty to remain globally competitive with international investors. The KRA should assure investors that the rate of CGT will not change for at least five years and it should commit to an annual inflation allowance that increases the deemed value of the initial investment.

Quote of the day: “When Adam delved and Eve span, Who was then the gentleman?” 

John Ball
The radical English clergyman died on October 20, 1640

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