Stockbrokers back in court over contentious capital gains tax

Kenya: Stockbrokers have again moved to the High Court seeking to bar Kenya Revenue Authority (KRA) from demanding capital gains tax (CGT) for some time.

Stockbrokers made an urgent application, saying the time given by the court to have the taxman stay away from their operations before the appeal had already lapsed. They said there is a likelihood of KRA demanding the contested levies.

"The officials of the second respondent (KRA) are likely to take enforcement action against members of the petitioner before the application is heard and determined,'' the stockbrokers' lawyer Kiragu Kimani told High Court Judge Weldon Korir.

In their dismissed case, Kenya Association of Stockbrokers and Investment Bankers (Kasib) had been given until April 10 after which the stay orders issued by Justice Mumbi Ngugi would lapse. They had sought for 21 days so that they could challenge her decision in the Appellate Court.

National Assembly

Justice Ngugi in her judgement upheld the argument by the Kenyan taxman that the law on tax had been properly passed by the August House and its implementation was a matter of policy that would not hurt their rights. The Judge made a finding that the National Assembly had subjected the law to accepted levels of public participation by discussing it on the floor of the House.

However, Mr Kimani argued that some of the sections on the tax that had been relied on by the Judge to make her ruling were not in force. "Justice Mumbi Ngugi inadvertently but erroneously relied on a repealed provision that is no longer part of the law when she dismissed the petitioner's arguments," the lawyer said.

KRA in its court papers defended the CGT, arguing that it was introduced to seal a number of vents that allowed people to use the securities exchange to evade tax.

Amount taxed

The taxman insists the amount taxed will only be on gains earned from January 1, this year when the law was implemented, and not since acquisition as claimed by Kasib.

The Judge said the fact that the law on CGT was suspended and not repealed meant that Parliament intended to re-introduce the levy in the future. The centre of the dispute between the taxman and the brokers is the introduction of five per cent tax on transactions gains in which the brokers in their case argued that the re-introduction of this was affecting negatively capital market trading.

If the Finance Act section 10 (a) and section 23 sees the light of day, investors are expected retain five per cent of any gains realised from the trade of shares and the brokers are expected to act as agents of Kenya Revenue Authority.

However, the brokers argue that there are conflicting clauses as one demands collection of 7.5 and the other 5 per cent deduction. They claimed in their suit that the compulsory calculation and submitting of the tax were impossible as the whole law was confusing.