Property taxes and house sales hit 12.5 billion shillings in nine months
Taxes collected on the transfer of real estate and shares in private companies for the nine months to last March rose by 8.11%, indicating a slight increase in income from real estate transactions before the tripling of charges.
Tax revenue from real estate transactions amounted to almost 12.53 billion shillings between July 2021 and March 2022, compared to 11.59 billion shillings in the same period of the previous year, according to the latest data from the National Treasure.
Businesses and households that dispose of land, buildings and unlisted securities such as shares of private companies are subject to a capital gains tax of 5% on the net proceeds of transactions.
Buyers, on the other hand, must pay stamp duty at the rate of 4% of the value of the property in major cities and 2% in rural areas, while the rate for unlisted shares is 1%.
Offenders of the CGT are sentenced to a fine of 20% of the tax due.
Analysis of Treasury data shows that collections on real estate sales have increased slightly since Treasury Secretary Ukur Yatani implemented the Stamp Duty (Real Estate Valuation) Regulations in August 2020.
Property tax revenue during the review period, for example, was 6.98% higher at 11.71 billion shillings from July 2019 to March 2020 before the current assessment rules came into effect.
The rules authorize the government’s chief appraiser to appoint licensed private practitioners for a renewable period of three years to carry out property appraisal on behalf of the government. This was intended to shore up property tax revenue by reducing enforcement time.
The CGT and stamp duties are a major source of revenue for the government.
CGT will triple to 15% from next January after lawmakers backed the Treasury’s proposal before the House adjourned indefinitely ahead of the Aug. 9 election despite protests from captains of industry and tax experts.
“Triple that [CGT] rate of five to 15 percent kills the real estate sector. It will make investing in our country more unpredictable, we will mess up our ease of doing business index and slow down the growth of the economy,” Philip Muema, a partner at Andersen Kenya, a tax and business advisory firm, said over the phone.
The property sector has suffered a sustained downturn in recent years as developers struggle to repay loans on property, leading bankers to hire auctioneers to forcibly sell homes to collect accumulated debts.
The latest sector data from the Central Bank of Kenya, for example, shows that new credit to the housing sector increased by 3.60% to 460 billion shillings in the year to March 2022, while non-performing loans increased by 11.35% to 78.5 billion shillings.