The taxman has ordered investors at the Nairobi Securities Exchange (NSE) to continue paying capital tax until the end of the year, ushering in more bad news for a bear market.
The Kenya Revenue Authority (KRA)larification means those who have traded shares since January are liable to pay the tax.
Trade volumes at the NSE had started picking up mid-June after Finance secretary Henry Rotich proposed the scraping of the capital gains tax (CGT) in his Budget statement.
The market players celebrated too early as the proposal is set to be implemented next year.
“The Finance Bill 2015 has proposed the introduction of a withholding tax at 0.3 per cent of the gross transaction value on the sale of listed securities effective January 1, 2016.
“This will replace the current five per cent capital gains tax on the net gains from such sales,” said commissioner of domestic taxes Alice Owuor in a statement.
Stockbrokers had pegged their hopes of a vibrant second half of the year on the scraping of the tax which had created uncertainty among investors. The brokers had gone to court challenging KRA order that they collect the tax.
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The matter is before a three-judge bench at the Court of Appeal. Last week, the brokers through lobby Kenya Association of Stockbrokers and Investment Banks (Kasib) sought an order staying any enforcement action until the court made its ruling. The judges said they would make a ruling on the stay order in October after considering all the submissions.
READ: Brokers accuse KRA of shifting goal posts on tax
Kasib agreed with the taxman that the capital gains tax was still in effect given the law was passed by Parliament last year.
“In my opinion seeing that the matter is before court the most prudent thing would be to wait and get the ruling from the judges,” said Kasib chief executive Willie Njoroge.
He said the brokers have not been submitting the capital gains tax with only four brokers having made single payments to the taxman.
“None of us has been compliant because we are unable to compute the gain,” said Mr Njoroge.
KRA insistence on the tax is expected to entrench the current bear run in the market where the NSE 20 index has shed 11.3 per cent from January.
“The equity market has been a little disappointing and fumbles like the proposed CGT were unhelpful,” market observer Aly-Khan Satchu had told the Business Daily at the beginning of the month.
Capital gains tax is calculated at five per cent of the difference between the selling price and the acquisition price less transaction costs incurred.
For computation of the gain, KRA is relying on the Central Depository and Settlement Corporation to determine the acquisition prices of shares bought after 2005.
For shares bought between 2005 and 1998 the purchase price is assumed to be the highest prices recorded by the specific counter that year as recorded by NSE.
Shares bought prior to 1998 are assumed to have been acquired at the highest price recorded in 1998.