Capital Gains Tax: Give to Caesar what belongs to

In the New Testament, Jesus exhorts Christians "to give to Caesar what belongs to Caesar". Some 2,000 years later, this message still has a heavy bearing.

Parliament's Budget and Appropriation Committee has drafted proposals in the Finance Bill 2014 that if passed will widen the tax net considerably.

In a bid to raise more money to plug the Sh1.8 trillion 2014/15 Budget, the Government is exploring more ways of raising the funds away from the traditional ways.

And indeed, one of the avenues they have identified is to introduce tax on profits made on real estate, especially land, houses and shares in the stock market.

Conservative estimates indicate that the Capital Gains Tax will pump into the Exchequer Sh7.5 billion annually. That is not little money considering that the Government is strapped for cash to use in major development projects and to cement devolution.

In actual fact, this type of taxation is long overdue.

The move is welcome because it will ensure those involved in buying and hoarding large tracts of land for speculative purposes -  even when such land is not utilised for any economic activities - pay tax.

Most of the speculators have been buying land cheaply, then waiting for some time to pass, while doing nothing with the land, only to sell it at huge prices without paying tax even after such property has appreciated more than three-fold.

Still, there are big players at the Nairobi Securities Exchange whose duty is to play with stocks –buy, wait for the companies to make a profit, then dump them at a profit.

The thinking is that there is a booming and vibrant real estate sector in the country but which, for many reasons, does not accrue taxes to the Exchequer. Yet there are those who feel that tax on capital gains will make Kenya unattractive for investment. Their concerns should be taken into consideration. For whereas it is best to tax capital gains, prudence should be exercised so as not to scare away potential investors. This will be achieved through competitive rates.

The way forward is to incorporate best international practices relating to the capital gains taxation.This has been applied successfully in other countries like the US and Britain.

In fact, the new tax should make the sector more competitive and transparent.

More to the point, the new law should ensure that the market is left to the forces of demand and supply.

If well implemented, it is expected that the Government will earn its fair share of earnings, while at the same time providing adequate incentives to existing and potential investors in the sector.

But MPs should be alive to the fact that there are corrupt and vicious wheeler-dealers on the loose and who have largely benefited from the current laws who might fight the new law.

These forces would naturally be keen to protect their money from the taxman and are likely to sponsor other forces to block the new law from coming to force.

They are likely to lobby big time—they have the money and the influence—to have the changes rejected or made insignificant. That should not happen.
They may also use the back door to water down the changes, and find ways to side-step the legislative measures to have them surrender a little of their profits to the taxman.

That is expected because this is a new thing and it is only natural for them to defend their turf.

MPs should this one time put the national interest at the forefront and ensure the taxman has sufficient legislative power to implement the capital gains tax without hurting the common man and genuine investors.

Just as it was 2,000 years ago, what is due to Caesar must be be surrendered to Caesar.