KPMG offers recommendations on the new Finance Bill in Kenya

Big Four accounting and advisory firm KPMG has urged the Kenyan government to reconsider the new financial policies that will entail a greater tax burden for property owners and sellers. As a solution, the firm has proposed that policy makers use indexation to adjust property rates against market changes. 

Under provisions of The Finance bill, those looking to sell property in Kenya are likely to pay more than twice the amount of tax that they were previously. Where the tax rate on property transactions was previously 5%, owners and sellers now have to pay 12.5 % in tax on their transactions.

To some extent, the new bill brings Kenya closer some of its neighbouring countries when it comes to taxation on property, although not to a substantial degree. Neighbouring countries Uganda and Rwanda have Capital Gains Tax as high as 30% in place, translating into a significant burden on property owners.

KPMG and other market watchers have argued that the spike in capital gains tax is too sudden and might have adverse effects on investors, although the government has attributed the sharp increase to inflation and other market changes. KPMG has offered a solution to this scenario.

The firm has recommended the use of a Consumer Price Index to measure capital gains tax, given that it takes into consideration a wide variety of factors, including inflation, costs of living and economic fluctuations. In order to avoid negative repercussions, the firm has made the recommendation to parliament.

“Our proposal is that we introduce indexation in calculating gains since this is best practice in other jurisdiction including our neighbours Uganda,” said KPMG Partner Peter Kinuthia in a speech to parliament. While the measure is motivated by the policy of taxing the wealthy, experts are concerned that such measures might discourage investments.

Kenya is set to become the driving force in a vibrant East African economy, which has become a popular region for foreign investment. Increasing capital gains tax in such large measures is likely to discourage this trend, and deal a setback to Kenya’s increasingly central economic position.