MPs want capital gains tax to be doubled

Investors disposing of properties will still face higher tax burdens, even with the proposed capital gains tax (CGT) cut after lawmakers rejected calls to factor in inflationary price changes of purchase.

The National Assembly Finance and Planning Committee has recommended that the proposed tax on the disposal of assets such as houses, land and private shares in the 2022 Finance Bill be reduced to 10% from 15 % by the Treasury.

This means that the rate, applied on the net proceeds from the sale of goods, will double from January next year if the House approves the committee’s recommendation rather than tripling as had been proposed in the bill.

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Sellers of goods will, however, still be exposed to high tax burdens after lawmakers refused to allow the introduction of an inflation adjustment – ​​technically known as indexation – on the purchase price of the well when calculating the CGT.

“The increase in the CGT from 5% to 10% was a huge leap forward,” the committee chaired by Gladys Wanga (Homa Bay) wrote on Tuesday. “Introducing indexing requires broader stakeholder consultations.”

Indexation ensures that the effect of inflation on the purchase price is eliminated when calculating the CGT upon disposal of the property.

Tax experts, trade associations and trade bodies have argued that some of the capital gains are due to inflation, as the value of money declines over time and can be removed by adjusting the purchase price by result.

Debate over CGT’s inflation adjustment was heated when the country tightened the tax in January 2015 after a 30-year suspension, but was dismissed on the grounds that it would ‘complicate the process’ of calculating the rate. .

In the end, the country settled on a modest 5% rate on the net proceeds from the sale of real estate, seen as simple and low enough to deal with inflationary swings over the years.

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“One would have hoped that with the proposed increase in the CGT rate, the government would also have introduced the concept of indexation to ensure that the effects of inflation are taken into account in the determination of capital gains ​​taxable,” Deloitte audit and consulting firm wrote in a statement. report on the 2022 finance bill.

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