The government has rolled out new rules that will guide the sale of properties in the country.
According to the newly approved rules, investors and homeowners who are seeking to dispose off their properties will be subjected to more levies.
This follows the signing into law The Finance Bill 2022 that will see those in the real estate sector pay 15 per cent of their profits to the government.
The law, signed by President Uhuru Kenyatta on Monday, June 21, officially operationalised the Capital Gain Tax (CGT).
The Capital Gain tax is a levy on the profit that an investor makes when an investment is sold. It is owed for the tax year during which the investment is sold. It is declared and paid by the transferor of the property.
Capital Gain is however not subject to further taxation after payment of the newly approved 15 per cent tax.
Initially, the Capital Gain Tax stood at five per cent and was introduced to the real estate sector in 2015.
The new law will take effect from January 2023.
"Section 34 of the Income Tax Act is amended— (a) in subsection (1), by deleting the expression “five percent” appearing in paragraph (j) and substituting therefor the expression “fifteen percent” the Finance Act," the Finance Act 2022 read in part.
Members of Parliament had proposed the levy to be raised to 10 per cent but the National Treasury maintained that it should be capped at 15 per cent.
According to the government, this will help in broadening the tax bracket in the country.
The enforcement of new measures come at a time when the real estate sector is feeling the heat of economic downtime.
A recent survey by Kenya Bankers Association (KBA) revealed that the demand for affordable houses in the country has dipped due to inflationary pressures both locally and globally.
KBA detailed that inflation has also affected consumer incomes taking a toll on the investments channeled towards acquiring homes in the country.
It pointed at punitive tax regimes, land laws, restrictive compliance, listing costs, and other government policies that have affected developers' efforts to promote investments in the property market through Real Estate Investment Trusts (Reits).
"The steady decline in house prices broadly reflects the headwinds in the economy that influenced both demand and supply characteristics of the market," the Kenya Bankers Association survey showed.
