Consequences of Stamp Duty Act repeal

By Pravin Bowry

The budget date is around the corner, and leakages abound that the Stamp Duty Act is likely to be repealed.

The impact of this proposed change in our taxation laws will be phenomenal as stamp duty is one of the most important source of income for the exchequer.

Buyers and sellers of land and shares have already shifted to low gear in anticipation. Why should purchasers pay 4 per cent stamp duty on urban purchase of land or 2 per cent for agricultural land if in three months it can be avoided?

Stamp duty is a legacy from the English system being tax raised by requiring stamps affixed (or embossed) by the Government to all legal and designated documents — from ordinary receipts to transfers of shares and land and all mortgages and charges.

Every receipt for monies paid becomes inadmissible in law if Sh2 stamp duty is not paid as is the case with other documents such as agreements for sale.

The magnitude of the revenue earned can be fathomed from the fact that each cheque drawn of any Kenyan bank has an inbuilt charge of Sh2.50 as stamp duty.

Alternative taxation

Will abolishing stamp duty be a good change or will it have adverse effects?

The loss of revenue from abolishing stamp duty will be so great that the Government will inevitably have to seek alternative means of taxation.

Many questions arise. Will capital gains tax be reintroduced? Is the move aimed at further enriching the already stinking rich speculators of yesteryears? Will it circumvent delays in the land office?

In conveyancing circles, non payment of the legal stamp duty on major transactions is a recipe for huge scams going on in the commercial world.

Both vendors and purchasers of land and other transactions often do not depict the real value of the transaction, with parties agreeing to reduce the amount in legal documents to avoid stamp duty and also to keep off the scent of big volumes of monies from the income tax department.

The problem became so grave that the Government some years ago introduced mandatory valuations of each transaction by Government valuers. This was and still is a source of great delay in the registration process.

Tax loss

The land office reality in legal and conveyancing world is that valuers demand and receive bribes to understate the real values.

The opposing options at the spectrum, therefore, are tax loss to the state versus increased efficiency. Abolishing stamp duty would be tantamount to removing one major thorn from corrupt practices prevailing in land deals.

If total abolishing does not come through, a reduced rate may well generate greater economic activity.

Whatever the pros and cons, one pertinent issue is that the changes in collection of stamp duty must be simplified, made user friendly and aimed at making Kenyans an honest breed of tax payers.

It is perhaps opportune to look at another piece of legislation.

It is often surmised that the powers that be in and around 1978 caused amendments to the Estate Duty Act to protect the estates of some influential politicians and then later the Estate Duty (Abolition) Act was passed in 1982 completely abolishing the death duty — or inheritance tax as it is called in other countries.

Is the envisaged change in taxation laws based on national interests or is it yet another partisan scheme to outwit the Kenyan proletariat?

The motive of the idea of removing stamp duty altogether is unclear, and the Minister of Finance must act only after adequate informed debate emanating in financial circles