The National Assembly has rejected Treasury’s attempt to double the capital gains tax to 12.5 per cent from the current 5%.
The finance and planning committee opted to retain the 5 per cent levy saying that the doubling of the tax would hurt the government’s housing agenda as it seeks to add 500,000 houses.
In this case, the committee alluded that it would be difficult to establish whether housing price gains are due to inflation or natural appreciation.
On top of that, the committee retained the capital gains tax (CGT) due to the complexities of indexation citing that the treasury lacks a clear indexation formula. Indexation is an adjustment to the capital gains calculation to eliminate the effects of inflation on the final price and arrive at a fair value of an asset to tax.
According to KRA, CGT is levied on the transfer of property at the rate of tax is 5% of the net gain arising from the sale of the property.
However, there are exemptions such as the sale of shares, cars, machinery, and agricultural property of less than 50 acres outside urban areas, inheritance, and divorce settlement properties.
The treasury on its part cited standardization with regional tax regimes such as Uganda (30%), Tanzania (20%), South Africa (40%), Botswana (25%), and Nigeria (10%).
In addition, Treasury hoped to raise sh4.3 billion in the year starting July from the tax.