Kenya scrapped its 5 percent capital gains tax on shares less than six months after it was introduced following objections by stockbrokers in East Africa’s biggest economy.
The levy will be replaced by a 0.3 percent withholding tax on the value of share transactions, Treasury Secretary Henry Rotich said Thursday in his annual budget speech in the capital, Nairobi. The decision was made after “challenges in some sectors of the economy,” he said.
Trading volumes on the Nairobi Securities Exchange slumped 70 percent within the first month of the tax being introduced on Jan. 1, prompting the Kenya Association of Stockbrokers and Investment Banks to challenge the law in court that month. The Institute of Certified Public Accountants in May called for a review of the tax.
The Kenya Revenue Authority had demanded that stockbrokers be the collection agents of the tax, while brokers argued they didn’t have the legal authority to do so.
“This now bodes well for the market,” George Bodo, head of the financial desk at Nairobi-based Ecobank Capital Ltd., said by phone after the announcement. “Transaction tax is the best way forward.”