The Kenya Revenue Authority (KRA), an agency of the government of Kenya responsible for the assessment, collection and accounting for all revenues that are due to the State, has enhanced its digital tax system (iTax) 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.
As part of the initiative, the 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.
Under the new system, the 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 are 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 Ksh580 million (about $5.8 million) against a target of Ksh391,263,973 (about $3.9 million). This translated to a revenue performance of 151% on the CGT tax head.
Since reinstatement of CGT in 2015, the Kenya Revenue Authority 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.
According to Mrs. Elizabeth Meyo, KRA Commissioner for the country’s Domestic Taxes Department, the Authority has ensured automation of CGT on iTax, a strategy that marked 100% turning point from manual administration of CGT to online.
With the new measures, the KRA projects to realise more revenue on CGT in the current financial year.