Anxiety in financial sector over revived capital gains tax

Finance cabinet secretary Henry rotich during their meeiting with senate finance commitee at KICC (BEVERLYNE MUSILI)

Anxiety has gripped the financial sector following the passage into law of the Finance Bill, which among others, provide for a five per cent capital gains tax (CGT).

This comes after National Treasury Cabinet Secretary Henry Rotich made an announcement to tax proceeds from the commercial transfer of properties and shares of listed companies.

The move is meant to ensure that wealthier members of the society also make contribution towards the Government's development agenda.

But there are fears that the tax would hurt Nairobi Securities Exchange (NSE) and choke the flourishing property market.

"I understand the apprehension in the sector. However its design and implementation will be done in a way that will not hurt the sector," Rotich told reporters in Nairobi last week.

"We will work with all stakeholders including Kenya Revenue Authority to ensure that its implementation will not affect the growth we have achieved over the years," he added.

Plans for the re-introduction of the controversial tax are part of National Treasury's efforts to finance the Government's ballooning expenditures. But the law is not clear on which sectors are to be affected by the new tax.

" It (Finance Act) doesn't specify the sectors but the tax is on a net basis with intention of not effecting growth of the sectors," said Rotich, adding," It was important that we have it first then we work on the implementation process."

"We have started with the lowest rate but review will depend on how sectors perform going forward. For now we want to keep rates as stable as possible. What we need to do is to widen the tax base," he said.

According to Rotich the capital gains tax would be revised but only when circumstances demand. "We don't need to change it very soon. Tax rates are revised when circumstances change. We are in a dynamic world," he said.

At an earlier interview, tax experts reckoned that the process of coming up with CGT should be consultative to incorporate the views of all stakeholders.

"We hope that the process to come up with CGT legislation will be consultative in order to incorporate the views of relevant stakeholders," said Steve Okello, Head of tax at PricewaterhouseCoopers (PwC) Consultancy firm.

According to PwC the tax, which is imposed on real estate, marketable securities and other saleable assets, is likely to have an impact on all sectors of the economy.

"However the major impact is likely to be felt in the property and financial markets if the exemption on marketable securities such as shares is not retained," said Okello.