Implementation of the reintroduced Capital Gains Tax

Abstract

This paper presents results of the evaluation of the process of effecting capital gains tax that was reintroduced in Kenya after suspension of close three and half decades. In addition, the paper outlines recommendations that if adopted would enhance administration and general operation of the tax. It further provides recommendations on areas for future research that may in the long run improve the overall efficiency of the tax system. Data was obtained through interviews and administration of structured questionnaires on populations comprising of registered valuers, registered estate agents and tax officials (KRA staff). Random sampling was used in the selection of estate agents and valuers while purposive sampling was used in selecting of KRA officials dealing with CGT. The study established that implementation of capital gains tax faced numerous challenges including: lack of awareness; lack of documentation required for computing CGT; lack of consideration for time value of money in appreciation of property value; lack of clear methodology in computation of ‘capital gain’ in properties that are partly let and partly owner occupied; lack of involvement of valuers in computation of capital gains and lack of clarity on CGT payment in case of auction or foreclosure of a property. Recommendation: The study recommends that KRA conducts CGT awareness campaigns; factor in indexation and involve valuers and other professionals in the determination of ‘capital gains ‘and clarification on parties paying capital gains tax in case of auction.

Keywords: Capital gains, Challenges, Administration and Implementation