The High Court has stopped the Kenya Revenue Authority (KRA) from implementing laws that will see capital gains tax paid before transactions are completed following a lawsuit by the Law Society of Kenya (LSK).
Justice John Mativo has ordered the KRA to suspend implementation of paragraph 11A of the eighth schedule to the Income Tax Act which provided that capital gains tax be paid prior to completing transfer of assets being sold.
Previously, the capital gains tax was payable not later than the 20th day of the month in which asset sales occurred.
The levy is payable through the KRA’s iTax portal.
The LSK now says the amount of capital tax gains due cannot be ascertained before the sale has been completed. The advocates hold that the move has stalled several land deals and dealt a blow to several citizens’ and firms’ property rights.
“The application is hereby certified urgent and admitted for hearing on a priority basis. The KRA is hereby restrained whether by itself, agents, servants or employees from implementing provisions of paragraph 11A of the eighth schedule to the Income Tax Act pending the hearing and determination of the application inter partes,” Mr Justice Mativo ordered.
The LSK argues that it attempted to engage the KRA in dialogue to resolve the disputed clause, but that the taxman stayed put forcing it to move to court.
The KRA began implementing the disputed clauses on January 30, and the LSK argues that it risks affecting Kenya’s economy by frustrating land deals which have now stalled.
“The above action by the KRA now obliges the seller of a property to assess and pay capital gains tax at a time when it is not due and is not capable of being ascertained thereby prejudicing property rights by fettering free alienability of property.”
“The above action has accordingly caused sale of land transactions to stall thereby causing extreme prejudice, not only to the vendors and purchasers of property, but to the Kenyan economy,” the LSK argues.
The lawyers hold that the disputed clause contradicts Article 40 of the Constitution which protects citizens’ right to enjoyment of property whether by occupying, selling, leasing or renting it out.
Kenya reintroduced the capital gains tax in January 2015, 30 years after it was scrapped as part of a move to woo foreign investors into the country.
The reintroduction of the tax caused a storm that saw stockbrokers challenge it in court, albeit unsuccessfully.