President Kenyatta and the Kenyan Parliament approved the Kenyan Finance Bill 2014 on October 1, 2014. The bill that is expected to be gazetted shortly contains lots of legislation in it. Majority of the legislation included in the Bill is applicable to the oil and mining industry, real estate and equities will be effective on January 1, 2015.
Capital Gain Tax
This is tax levied on capital gains incurred by individuals and corporations. Capital gains are the profit that an investor realizes from sale of property or an investment such as equities or bonds for a higher price than the purchase price.
Capital gains taxes are only triggered when an asset is realized, not while it is held by an investor. An investor can own shares that appreciate every year, but the investor does not incur a capital gains tax on the shares until they are sold.
Capital gain will see the Kenyan government raise funds for development projects to encourage economic growth and creation of jobs. The Finance Bill 2014 has reintroduced a ‘Capital Gains Tax’ for the first time since 1985 when such taxation was suspended.
The tax is not applicable in a situation whereby an investor incurs capital loss.
Read also Kenya to introduce tax on capital gains
Advantage to Real Estate Developers
Deferred tax if the value of a property increases by one million during the year and it is not sold, homeowners will not have to pay the capital gains tax.
Inventory is not taxed. After buying a land or property for your business premise and selling it after one year there will be no tax as inventory is not considered a capital asset.
On the other hand, low income earner’s salary is taxed so will those who have made capital gains be taxed as well.
In conclusion, Kenya’s 5% capital gain tax is an incentive unlike in countries like Uganda and Tanzania whose capital gain tax stands at 30% and 20% respectively. Zambia and Zimbabwe highest gain tax is 35%.