KRA fights capital gains tax hitch


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The Kenya Revenue Authority (KRA) wants the court to suspend an order stopping it from seeking capital gains tax following a verdict that declared its law unconstitutional.

In a suit filed Tuesday, the taxman sought the court’s intervention, arguing that it will be forced to delink the iTax payment module and the stamp duty, causing it great losses.

The tax demands that those selling property, mineral or oil exploration blocks will pay duty of five per cent on the net gain from the value of the transaction.

Through lawyer Pius Nyaga, the KRA claimed that it discarded the manual system of filing taxes when it rolled out the iTax payment module thus it does not have an alternative system to deploy to collect both stamp duty and the Capital Gains Tax.

“KRA invites this court to suspend the effect of its March 14 judgment regarding the declaration of invalidity of a section of the Income Tax Act on account of undue hardship that is likely to follow,” said Mr Nyaga.

The suit follows an earlier one filed by the Law Society of Kenya who challenged constitutionality of a section of the Income Tax Act that legalised payment of capital gain tax upon presentation of the transfer instrument as opposed to upon successful transfer of the property.

The LSK said it is not opposed to payment of capital gains tax, but had protested the fact that it was to be imposed on those who acquire properties even before they get full possession of the same, terming it unlawful.

In the case, Justice John Mativo declared the disputed law as unconstitutional and one that unfairly imposes a tax burden on the public.

President Uhuru Kenyatta in 2014 signed into law a five per cent capital gains tax that allows taxation made gains on price appreciation of property and sale of blocks for oil and mining sectors.

The plans for a capital gains tax were first announced in June 2013’s budget, leading to a sharp decline in share prices as investors fretted the tax might sap the appeal of equities.

But Kenya dropped equities when it re-introduced the capital gains tax.

Capital gains tax was dropped by the country in the mid-1980s to attract foreign and local investment.

According to the KRA, the taxman is bound to suffer twice if the verdict is not suspended since it will mean that the two payment modules will be delinked and they will have to reconfigure the system.

“Court has powers to suspend the declaration of invalidity of a law or a section of a statute in order to grant a party an opportunity to exercise its constitutional right of Appeal to a Superior court,” said Mr Nyaga.

The taxman reckons the capital gains tax had been reintroduced after it was suspended in the country from 1985 and is merely aimed at widening the tax base.

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