Kenya Plans to Re-Introduce Capital Gain Tax to Raise Revenue

Kenya is considering reinstating a tax on capital gains as part of its efforts to increase revenue and plug the budget deficit, Finance Ministry Permanent Secretary Joseph Kinyua said.

The proposal, which was introduced by Treasury Secretary Henry Rotich in his 2013-14 budget speech last week, would initially target property transactions, Kinyua said today in a phone interview from the capital, Nairobi. There is no immediate plan to implement a capital gains tax on share sales, the outgoing public servant in the Finance Ministry said.

“The plan is to re-introduce the capital gains tax, which was suspended in the 1980s, in order to raise more revenue,” Kinyua said. “It will target the real-estate sector, which has recorded tremendous growth over the years. There are no immediate plans to levy the charge on stocks.”

The International Monetary Fund has encouraged Kenya to review its system of tax administration to boost government coffers. Kenya’s budget shortfall may reach 7.9 percent of gross domestic product, or 329.7 billion shillings ($3.8 billion), in the fiscal year through June 2014, Rotich said on June 13.

“The government has initiated a review of the capital gains tax with a view to formulating modalities for its effective enforcement,” he said. The idea is to ensure “wealthier members of our society also make a token contribution toward our national development agenda.”

Kenya, East Africa’s largest economy, targets economic expansion of 5.8 percent this year and 7 percent in the medium term from 4.6 percent in 2012, Rotich said.

Kamau Thugge, an economic adviser at the Finance Ministry, has been named by President Uhuru Kenyatta to succeed Kinyua in the newly titled role of Treasury Principal Secretary. His nomination must be approved by lawmakers.

Before it's here, it's on the Bloomberg Terminal.