18. Finance Act, No. 22 of 2022

The law was the Finance Act 2022 which spelt out the taxation measures/proposals for the financial year 2022-2023.

· Quick Link: https://kra.go.ke/images/publications/Finance--Act-2022.pdf

· The Finance Act, No. 22 of 2022 which was assented into law on 21 June 2022 amended the Income Tax Act and tripled the rate of CGT to 15 percent of the net gain from 5 percent, in a bid to boost revenue collection. This certainly made it unattractive to investors thereby reducing potential supply of available affordable houses in the market, largely due to reduction of potential returns. However, the rate of 5% has been retained for firms or companies that are certified with the newly launched Nairobi International Financial Centre Authority (NIFCA) who will have invested 5 billion Kenya Shillings prior to 1 January 2023 and held the investment for at least 5 years before the disposal/transfer.

· There is also no provision for indexation (inflation adjustment/adjusting the original price of property upwards for purposes of tax to mitigate inflationary distortions)-whereby the law considers the inflation that has affected property prices and discounts the same. This is important given that a substantial part of the capital gains usually targeted by the tax are a result of inflation and related decrease in value of money as opposed to being an actual gain by a property owner.

· Notably, the indexation has also not been included in the Finance Act 2022 and despite lobbying for the same by various stakeholders, has been rejected by the relevant Departmental Committee of the National Assembly which has proposed the CGT at 10% from the current 5%.[1] Instead an increase in the CGT rate has been favoured largely owing to its non-complicated manner and ease of collection.

· An overall recommendation regarding the taxation environment is the need for a national tax policy[2] that will provide for a predictable tax environment and attract investments. This will also help avoid instances of changing tax policies every year through the Finance Bill, which destabilises the investment environment. Notably, Treasury has recently released a draft National Tax Policy 2022 (in July 2022) which is currently undergoing stakeholder validation.

· The Act also introduced an exemption from stamp duty on instruments executed in favour of a mortgage refinance company. This is meant to reduce transaction costs in relation to mortgage refinance companies.

· The Finance Act also amended sections 7 and 8 of the Miscellaneous Fees and Levies Act, 2016 which clarifies that import declaration fees and railway development fees will be applicable at the rate of 1.5% of the custom value of construction inputs of houses under the affordable housing scheme upon recommendation to the Commissioner by the Cabinet Secretary for housing.

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[1] See, Report of the Departmental Committee on Finance and National Planning on the consideration of the Finance Bill (National Assembly Bill No. 22 of 2022) at para 36 on page 18.

[2] This view is also shared by the Departmental Committee on Finance and National Planning of the National Assembly in its report above (p. 7).