Stock dealers toe the line and help net Sh381m in capital gains taxes

Half of stockbrokers have complied with the Kenya Revenue Authority’s directive to collect and submit the Capital Gains Tax.

KRA Commissioner of Domestic tax Alice Owuor said the number of those who have toed the line significantly contributed to the Sh381 million collected by mid-May.

“Half of the 22 have complied and remitted outstanding taxes, and provided information on their transactions as required by the commissioner. Consequently, we are currently hard at work analysing the returns to confirm if they have fully complied. We are also in the process of pursuing those who are yet to comply,” Ms Owuor said in a statement.

KRA had, on April 30, 2015, sent stockbrokers a final demand giving them 14 days to submit records and remit money collected as CGT since the tax became applicable on January 1.

ENFORCEMENT ACTION

“You are hereby given 14 days’ notice from the date of this letter to submit all outstanding taxes from January 2015 to April 2015 to avoid any enforcement action being taken without further reference to you,” read the letter.

A fortnight ago, KRA disclosed that it had surpassed its capital gains tax collections target of Sh200 million by 190 per cent.

Stockbrokers, under their umbrella body, the Kenya Association of Stockbrokers and Investment Banks (Kasib), have, however, maintained that modalities set for collecting the tax are hard to implement, and may disrupt the stock market to Kenya’s disadvantage.

The taxman said the challenges faced by the brokers would be addressed in due course, and called for partnership to iron out the rough patches.

“The resolution of the implementation challenges faced by the stockbrokers is a continuing process. KRA is committed and willing to assist them to comply whenever necessary. We are currently transforming to a service delivery oriented organisation and we will strive to nurture public confidence and trust, which we are very keen at forging with the stock brokers,” said Ms Owuor.

The commissioner said CGT is a policy decision over which the authority has no control and expressed confidence that policy makers considered all relevant factors, including the impact on foreign investments before legislating the law.

Stockbrokers last week expressed fears that the tax was likely to cause investors’ flight to other markets since trading will be slowed down.

“More than half of the traders at the NSE are foreigners; if we make the entry and exit of the stock market complicated by the CGT, they will simply scout for other markets. There are better ways the government can make money from stock market, not this one,” said Kasib chief executive Willie Njoroge.

KRA is planning legal action against the other half of stock dealers who are yet to comply with the taxation re-introduced last year after a 30-year suspension.

Last week, Egypt froze plans to implement the capital gains tax for two years. The move was reported to have caused a 5.5 per cent climb in EGX 30 Index benchmark, a new high since July 2013.

Cairo had proposed a 10 per cent levy as part of a raft of reforms aimed at widening the tax base and narrowing a budget deficit, a move that sparked investor outcry that it would damage the competitiveness of the country’s stock market.