The Draft Income Tax Bill 2018 has proposed an increase in the rate of Capital Gains Tax (CGT) from five percent to 20 percent and introduced indexation, “a formula for adjusted cost of property to take into account inflation as measured by Consumer Price Indices.”
That means that the increased CGT will lead to increased tax liability for people receiving capital gains on disposal of property. In addition, the introduction of indexation will remove the effects of inflation in discerning the taxable capital gains.
Deloitte Kenya in its analysis report of the Bill observes: “Admittedly, the current rate of CGT in Kenya (5%) is relatively lower compared to other jurisdictions and could have been a temporary relief given that CGT was recently re-introduced. It therefore comes as no surprise that the rate has been adjusted upwards as the Government seeks to tap into the gains arising from especially the real estate sector which has grown significantly in the recent past.”
According to the report, the increase in capital gains tax aims at increasing revenue collection from the booming real estate sector. Moreover, Deloitte Kenya is of the opinion the increase is steep but highlights that the tax enhances equity bearing in mind that CGT is a tax on wealth.