Stockbrokers to appeal court ruling on capital gains tax

The Kenya Association of Stockbrokers and Investment Banks (KASIB) is to lodge an appeal within 21 days, against an earlier High Court ruling that threw out their petition in favour of Kenya Revenue Authority(KRA) and the Attorney General on the new capital gains tax (CGT) on securities.

The lobby group went to court arguing that there was no public participation before the new tax was introduced and lack of clarity in legislation, and that levying the tax was an infringement on property rights as protected under the Constitution.

In its petition before High Court Judge Mumbi Ngugi, dated January 26th, 2015, KASIB sought conservatory orders, pending the hearing and determination of the application and petition, to stay the coming into force of Section 10(a) and 23 of the Finance Act 2014. It also sought to restrain KRA from enforcing the law on members of the stock brokerage fraternity on account of their failure to file returns on CGT.

On 12 June 2014, the Government published the Finance Act 2014, which proposed a number of changes to the Income Tax Act. The Bill was tabled in Parliament for debate, resulting in the Finance Act, which was published on September 19th, 2014. It re-introduced CGT, which had been suspended in 1985.

But stockbrokers have opposed the new tax, arguing that they do not handle cash or securities belong to foreign investors.

This class of investors usually enlists the services of global custodian companies who arrange sale, settlement and safe keeping of such securities.

KASIB maintains that while CGT exists in Uganda, Tanzania, Rwanda, Mauritius, Nigeria, Ghana, Zambia and Botswana, it does not apply to securities as the bourses are explicitly exempt from CGT.

In the court ruling, Judge Mumbi Ngugi found that the said provisions - Section 10(a) and Section 23 of the Finance Act 2014, are not retrospective.

“A tax that is being charged at five per cent of the gain or profit upon transfer of the property, or appreciation in value between the date of purchases and transfer occurring after January 1st, 2015 cannot, in my view, be said to be retrospective,” said Judge Mumbi.