In October 2019, the Kenya Revenue Authority made a change to its policies, making mandatory the filling of stamp duty and capital gains tax (CGT) payments through i-Tax, its online portal.
Banks have however faulted the protocol which has made it technically difficult for them to auction defaulters properties since it requires loan defaulters to upload details of capital gains on their properties on any transfer of property can be effected.
“Banks don’t have documentation such as the cost of the property to compute capital gains tax. This has made our transfer of assets very difficult,” said the Kenya Bankers Association CEO, Habil Olaka, during an interview.
The policy shift has thrown banks into a legal tussle with the taxman after lenders were left holding securities that they are unable to sell to recover their loans. KBA had taken the taxman to court over the matter arguing that capital gains should be payable by property owners, and not owners of title deeds used as collateral.
“CGT has to be paid by the owners of the assets who have these documents. Effectively as we stand today, KRA has not complied with the court ruling to adjust their system to separate the payment of the two levies,” said Mr. Olaka.
However, KRA has argued that property valuations are carried out prior to bank lending in order to establish the forced sale value of the property and hence calculation of CGT is not an impossibility on the part of a bank.
The Law Society of Kenya, which has written to parliament to intervene on the matter says that there is no legal basis for KRA to impose the requirement to pay CGT tax prior to payment of stamp duty.
According to the Central Bank of Kenya (CBK), banks lent Ksh. 376.2 billion to the real estate sector at the end beginning of 2019 compared with Ksh. 388.1 billion at the beginning of 2018.
The difficulty created by the KRA policy in disposing of recovered assets is partly responsible for the banking sector’s increase in non-performing loans which has risen to Ksh. 340 billion as per the CBK.
The Law Society of Kenya, which has written to parliament to intervene on the matter says that there is no legal basis for KRA to impose the requirement to pay CGT tax prior to payment of stamp duty.
Read; 88-Nairobi gets nod from City Hall to begin work
Featured Properties
