This archive report was first published on 20 September 2019.
On September 20, 2019, the National Assembly's finance and planning committee made a crucial decision that would affect the country's housing market and taxpayers.
The committee rejected the Treasury's attempt to double the capital gains tax to 12.5% from the current 5%, citing concerns that the increased tax would hinder the government's ambitious housing agenda, which aims to add 500,000 houses.
The committee also expressed difficulties in determining whether housing price gains are due to inflation or natural appreciation, making it challenging to establish a fair value of an asset to tax.
Furthermore, the committee retained the 5% capital gains tax due to the complexities of indexation, as the Treasury lacked a clear indexation formula. Indexation is an adjustment to the capital gains calculation to eliminate the effects of inflation on the final price.
According to the Kenya Revenue Authority (KRA), capital gains tax is levied on the transfer of property at a rate of 5% of the net gain arising from the sale of the property. However, there are exemptions, including the sale of shares, cars, machinery, and agricultural property of less than 50 acres outside urban areas, inheritance, and divorce settlement properties.
The Treasury had hoped to raise Sh4.3 billion in the year starting July from the tax, citing standardization with regional tax regimes such as Uganda (30%), Tanzania (20%), South Africa (40%), Botswana (25%), and Nigeria (10%).
