The Kenya Revenue Authority (KRA) has enhanced the iTax system to reflect exemptions in transactions that attract Capital Gains Tax (CGT).
Capital Gains Tax is a tax chargeable on the transfer of a property such as land and buildings located within Kenya. It is payable by the party transferring the property.
KRA has now enhanced the iTax system through development of an exemptions function to closely monitor exemption declarations on CGT transactions. With the new enhancement in place, KRA can now accept or reject exemptions declared by the taxpayers in the course of their transactions thereby enhancing transparency and efficiency.
Through the system enhancement, all property transfer transactions declared as exempt from CGT will go through a verification and approval process. This process will regulate exemption declarations by the transacting parties.
KRA shall grant or deny CGT exemptions depending on whether or not the transactions meet the exemption guidelines provided for in the Income Tax Act. CGT exemptions are provided for under the First and Eighth Schedules of the Income Tax Act.
Among the transactions exempted from CGT include land whose value is not more than three million shillings, agricultural property having an area of less than fifty acres and property which is transferred or sold for the purpose of administering the estate of a deceased person.
Within its first month of implementation, the enhancement significantly boosted KRA’s collection on CGT in July, 2019 to Kshs. 580 million against a target of Kshs. 391,263,973. This translated to a revenue performance of 151 per cent on the CGT tax head.
Since reinstatement of CGT in 2015, KRA has been strategic in enhancing revenue collection on the tax head. Capital Gains Tax itself is a tax base expansion measure to tap revenue from taxable transactions involving transfer of properties.
KRA has ensured automation of CGT on iTax, a strategy that marked 100% turning point from manual administration of CGT to online.
In 2017, KRA further twined CGT with stamp duty in the system, which made it mandatory for transacting parties to declare CGT before paying stamp duty. These measures have seen KRA grow CGT revenues from Sh635 million in 2015 when the tax was reintroduced to an average of Sh3 billion in the recent financial years.
With the new measures to CGT transactions, coupled with the revision of the CGT rate from five per cent as proposed in the 2019/2020 Budget Statement to 12.5 per cent effective 1st October 2019, KRA projects to realise more revenue on CGT in the current financial year.
Commissioner, Domestic Taxes Department