Increase in Capital Gains Tax

Capital Gains Tax (CGT) is tax that is levied on sale or transfer of property situated in Kenya. If property, such as land, buildings, stocks and shares, is sold, leased, conveyed, exchanged, or otherwise disposed of in any way (including by way of gift), whether or not for payment, a transfer is said to have taken place.

CGT is declared and paid by the transferor of the property. Currently, CGT is levied at a rate of five percent (5%) of the Net gain. However, The Finance Act, 2022 amended the Income Tax Act which governs the CGT and has increased the rate from Five percent (5%) to Fifteen percent (15%). The increase will take effect from 1st January 2023.

One would have anticipated that the government would have introduced the concept of indexation together with the planned rise in the CGT rate to guarantee that the impacts of inflation are taken into account when assessing the taxable capital gains, unfortunately, the same was not factored. Property owners, developers, and investors will now be subject to greater tax obligations upon the sale of properties given that the CGT rate does not account for inflation changes. This also implies an additional burden to the already challenging Kenyan capital markets environment which has suffered massive foreign outflows and a falling benchmark index.