Tax capital gains to raise Sh7.47 billion, Budget Office tells MPs

A key parliamentary committee is planning to raise money for the budget by taxing profits from sale of land, houses and even shares in the stock market.

The Members of Parliament (MPs) of the Budget and Appropriations Committee will take the final decision on these taxes next week just before their colleagues in the Finance, Planning and Trade put the final changes to the Finance Bill on the floor of the House.

The Finance Bill, 2014 is the legal instrument that allows the Government to collect tax to raise money for the country’s budget in the fiscal year 2014/15. The lawmakers also mulled pushing for more taxes on cigarettes and alcohol to net more money for devolution and the mega projects in the country.

Officials of the Parliamentary Budget Office yesterday told MPs that if capital gains from real estate and from the stock market are taxed, then Kenya Revenue Authority will net an additional Sh7.47 billion in revenue.

“If the capital gains tax was to be re-introduced on real estate and on trade in shares, then we can raise a minimum of Sh7.47 billion,” the Budget Office told MPs.

But there was a little worry from some MPs when they heard that profits from the Nairobi Securities Exchange were going to be taxed. The lawmakers said the country should be “very careful” not to scare away investors. “It is a very dangerous thing to tax profits from the stock market. We have to be very careful about that because the international capital markets are very sensitive to such things,” said Dennis Waweru, MP for Dagoretti South.

Heavily taxed

The Budget Office said taxation of capital gains in real estate will discourage “speculative cabals”, such as people who buy or even grab land, and wait for the prices to go up, then sell at exorbitant profit without doing any development on the plots.

The MPs agreed that while it is good to raise revenue, the international investors have many options, and so eyes must be focused on making the tax rates for capital profits competitive.

“People who play in the securities market, up to 50 per cent are foreigners,” said Waweru. The chairman of the Budget and Appropriations Committee Mutava Musyimi said the taxes are key to make sure the country’s economy grows, and the lives of the people improve. “The problem in this country is that we are heavily taxed but we don’t see the services that we pay for,” said Musyimi.

Benson Makali (Kitui Central) insisted that tax rates must be competitive when compared to other markets in sub-saharan Africa.

“We just need to remain competitive as we tax them...they will still come,” said Makali.

The Kitui Central MP called tax “a good evil”and backed the proposal for capital gains to be taxed. “These money which these people in real estate make must be heavily taxed to discourage people from speculative tendencies,” said Makali.

For the first time, MPs questioned why sin tax was omitted from the Finance Bill. They said it is important for cigarettes and alcohol to be taxed to raise additional revenue. “There are people who buy cigarettes and smoke knowing very well it is going to kill them. We need to tax smokers heavily,” said Makali.

Makali asked his colleagues to push for taxing of luxury goods “especially those of us who buy expensive vehicles”.

“I will actually be interested in making sure that the poor are not taxed heavily,” he said.