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Stock brokers, KRA fail to seal deal on capital gains tax

By Kamau Muthoni | February 9th 2015

Kenya Revenue Authority (KRA) has failed to seal a deal with stock brokers over the Capital Gain Tax. This is despite the taxman seeking time for negotiations. The parties will now continue with the case filed by the stockbrokers as the two could not agree on the implementation of the law that will see the brokers remit taxes on behalf of their clients.

Stockbrokers during the mention of the case before High Court Judge Mumbi Ngugi last week, sought to have the court issue temporary orders barring the taxman from demanding the taxes under the new law. They say they would be at loss when they will be compelled to remit the monies by February 20.

“We are unable to cover ourselves as we do not have temporary orders barring the respondents from demanding the taxes from us. On February 20 we will get charges because we are unable to pay,”’ stockbrokers’ lawyer Walter Amoko argued.

KRA through its lawyer David Ontweka told the court that the law could not be declared unconstitutional on the basis of being unclear. KRA acting Deputy Commissioner James Ojee in a replying affidavit filed before the court said the challenges faced in implementing CGT law could not render it impossible to enforce.

Ojee argued in his response that the law was not a new thing as the same had been used until 1985 when it was suspended adding that the taxman had guided stockbrokers on calculating the five per cent tax on net gains from sale of shares and bonds.

Business enterprises

Mr Ojee said the reintroduced law did not operate only in the capital markets, adding that it was meant to ensure that investors trading in the securities also contributed to the exchequer like other business enterprises.

“KRA has over time and in good faith endeavoured to assist the stockbrokers to resolve these issues through ongoing engagements. The rate of tax applicable is five per cent on the gain made from transfer of property and the same applies to a spectrum sectors, and it’s not only on the sector that the petitioners operate,” Ojee said.

He poked holes in the stockbrokers’ argument that the country would lag behind in securities trade, arguing that the taxman had eased tax payment through electronic means. The court heard that KRA brought back paper work, 10 years after the Nairobi Securities Exchange had already automated its operations.

Ojee told the court that the State was eying the monies in the securities sector to ease the tax burden and seal loopholes that hampered maximum gain in revenue collection. He challenged the brokers to change their systems to comply with the law, adding that the law could not slow trading in the securities market.

Stockbrokers had told the court that trade volumes at the NSE had dropped by more than 70 per cent since the re-introduction of CGT this year. However Mr Ojee refuted the claim, arguing that other factors, besides the law can affect its performance. He said there was increased trading from international investors.

Mr Ojee urged the court not to issue temporary orders stopping CGT collection as it could see the State lose revenue, arguing that the suit ought to have been filed by investors as they are the ones being taxed, not the brokers who are the agents. Attorney General Githu Muigai asked for three days to file his response. The case will be heard on February 12.

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