The Tax Tribunal has dealt a blow to Fine Spinners Limited, a textile firm, after it affirmed a decision by the Kenya Revenue Authority (KRA) requiring the payment of an additional KSh 77.8 million in Capital Gains Tax (CGT) after it sold its property in 2022.
- •The Tribunal dismissed the company’s appeal and confirmed KRA’s revised CGT assessment of KSh 77.8 million, rejecting Fine Spinners’ arguments that it had already fulfilled its tax obligations.
- •At the heart of the dispute was a US$6 million industrial property sale in Nairobi’s Industrial Area to Laborex Limited.
- •Fine Spinners had declared and paid CGT at a rate of 5% in December 2022, based on the tax rate and foreign exchange rate at the time of the transaction.
However, KRA later determined that the effective date of the property transfer was July 2023, when the property was formally registered to the buyer. At that time, the new 15% CGT rate had taken effect under Kenya’s Finance Act of 2022.
Fine Spinners urged the Tribunal to overturn the Kenya Revenue Authority’s revised tax assessment, arguing that the decision was both legally flawed and procedurally unfair. The company sought to have the KRA’s objection decision dated May 24, 2024, and the assessment notice of February 27, 2024, quashed.
It further asked the Tribunal to recognize that the capital gains tax had been paid in accordance with the law as it stood in December 2022 and that any variance arose solely from government delays beyond its control.
The ruling, however, sided with the tax authority on the foreign exchange rate used to calculate the taxable gain. While Fine Spinners converted the $6 million sale price at an exchange rate of KSh 120 to the dollar, KRA used a July 2023 rate of KSh 140.37, increasing the Kenyan shilling value of the transaction by over KSh 120 million.
The Kenya Revenue Authority (KRA) maintained that the taxable event for CGT does not occur when a sale agreement is signed or payment is received, but when the property transfer is formally registered. Citing legal precedent and the Income Tax Act, the authority argued that Fine Spinners’ property was only officially transferred in July 2023 when stamp duty was paid and registration was completed.
The Tribunal dismissed the company’s claims that government delays in the land registry should not penalize taxpayers. It further found that Fine Spinners had failed to provide sufficient evidence to support its cost calculations, instead relying on unaudited ledgers.
