Capital Gains Tax in Kenya. Why Uhuru Kenyatta Government needs to borrow from Pennsylvania.
The Uhuru Kenyatta Government has recently reintroduced and revitalized Capital Gains Tax in Kenya.
Capital Gains Tax definition.
Capital Gains tax is a tax levied on profits accrued from the sale of an asset bought at much lower cost than the sale price.
The most common assess that attract capital gains tax are stocks and real estate property.
The main aim of tax is to enable funding of infrastructure ,hence increasing productivity.
Tax should also not be seen as punitive. It should be able to encourage growth, investment and create opportunities.
An enforcement of Capital Gains tax within land and property investment transactions will lead to the investors pushing the taxes to the purchasers, thereby increasing cost of land and buildings. The same situation will apply in case of enforcement of Rental income tax.
Use of Property tax for Infrastructure.
If the tax collected can be appropriately used to increase the infrastructure on the property, then this becomes a win win situation. For this to happen, the Government will need to be sure that all other sectors such as food security, health, education etc are well taken care of so that the rental and capital gains tax go to improve the infrastructure on the properties that enabled and raised the tax, thereby creating a win win situation.
Example. Block of flats.
For example, if a block of flats in Rongai paid rental income and capital gains tax then a tarmac road and sewer system were installed by the Governemnt, this will in turn enable the investors get better rents in a win win situation.
If the tax from the same flat all goes into public health and education in Moyale for example, the investors will not benefit .
2 rate Property tax method. Pennsylvania situation.
Pennsylvania’s capital city, Harrisburg, was voted 2nd best city to live in the US by Forbes Magazine for year 2010.
Pennsylvania, in the USA has come up with an ingenious method of taxation of properties.
It’s called the 2 rate method.
In this method, there are 2 separate tax rates for land and buildings.
The tax for land is higher than for developed property.
High development means lower tax.
The tax rate is designed such that the more the development on a building, the lesser the land tax. Land tax is highest on vacant undeveloped land.
This discourages people from holding land for long without developing it. People without funds to develop are forced to sell to developers. This has created alot of new job opportunities due to many construction projects.
Advantages to Pennsylvania.
As of 2010,this enabled a 28% reduction in crime rate, created thousands of new jobs and enabled usd 48 billion worth of new investments into Pennsylvania.
Vacant underutilized lands fell by 80%.
This taxation method has enabled Pennsylvania’s capital city, Harrisburg, win the 2nd best place to raise a family position by Forbes Magazine.
Advantages to Kenya.
With such well designed taxes, Kenya can be able to encourage investment in Real Estate, collect more taxes and spur economic growth.
Francis Gichuhi Kamau, Architect.