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High Court of Kenya temporarily suspends advance collection of capital gains tax

Executive summary

On 13 February 2017, the High Court of Kenya temporarily barred the Kenya Revenue Authority (the KRA) from collecting Capital Gains Tax (CGT) before the payment of stamp duty on transfer of property. This order is effective as of 13 February.

Detailed discussion


CGT was re-introduced in Kenya on 1 January 2015, following a 30 year suspension. Effective 1 January 2016, the Government amended the Income Tax Act (ITA) to provide that the due date for payment of CGT was determined to be “on or before the application for transfer of property.” In practice, this date coincides with “on or before” the time the taxpayer makes an application to pay stamp duty during the transfer of property process.

This provision affects the assessment and collection of CGT on land transactions since it does not take into account the manner in which such transactions are carried out in Kenya. As currently worded, it implies that CGT is payable before the actual transfer of property (that is, before the tax event that should trigger CGT).

High Court Ruling

As noted above, the ITA amendment did not consider the relevant features of land transactions in Kenya. Key among them is the fact that at the time of paying stamp duty, the purchase price has usually not been paid to the seller and hence their ability to pay CGT, where applicable, is remote.

Accordingly, the High Court of Kenya has temporarily barred the Kenya Revenue Authority (the KRA) from collecting CGT before the payment of stamp duty on transfer of property.

This followed a petition by the Law Society of Kenya citing that the due date for CGT, as contained in the ITA, greatly burdens parties that are in the process of transferring a certain property. This is because the law empowers the KRA to collect CGT before the seller realizes a capital gain, if any.

Next Steps

It is important to note that the above ruling is a temporary order and that the final ruling from the High Court and how the KRA implements the same remain to be seen. During this time period, parties to a transfer of property should consider the full completion of the transfer process in determination of tax point for CGT purposes.

EYG no. 00978-171Gbl

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