Kenya’s recent increase in Capital Gains Tax (CGT) from 5 percent to 15 percent has sparked a significant legal battle between the Kenya Revenue Authority (KRA) and several high-profile investors.
The dispute centers on the timing of asset transfers and the applicable tax rates, with the KRA asserting that CGT is due upon the registration of asset transfers, not at the time of payment.
Notable cases include the transfer of shares in Harley’s Limited, where shareholders paid CGT at the 5 percent rate in December 2022. However, the KRA assessed additional taxes, arguing that the actual transfer occurred in 2023, thus subject to the new 15 percent rate.
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The Tax Appeals Tribunal upheld the KRA’s position, emphasizing that the tax point is the registration date of the transfer, not the payment date.
This interpretation has significant implications for investors who initiated transactions before the tax hike but completed them afterward. The legal contention underscores the importance of aligning tax payments with the completion of asset transfers to avoid unexpected liabilities.
The KRA’s strict enforcement of the new CGT rate reflects its broader efforts to enhance tax compliance and revenue collection. However, investors argue that the retrospective application of the higher tax rate is unfair, especially when delays in registration are beyond their control.
As the legal battles continue, stakeholders are calling for clearer guidelines on CGT application to ensure fairness and predictability in the taxation of capital gains.
