Just a thought! In the recently read budget (2011/12), an interesting point came out. Hon. Uhuru Kenyatta mentioned that property dealers were from now on to be paying capital gains tax. The proviso was that if it is stated in the company's articles of association and memoranda that the company actively seeks to buy and sell land and other property for profit, then this profit which is a capital gain would be taxed as regular business income.
To my lay readers, capital gains is simply an increase in the value of an asset. For example, if you buy a house for Kshs. 1 million and sell it at Kshs 2 million, then you have made a capital gain of KShs. 1 million. In other countries, this gain is usually taxed at a given rate say 30%, so you'd have to give the taxman Kshs 300,000.
Now at first sight, it seemed like a sensible thing to do. If you tax capital gains to real estate companies, it could both reduce real estate speculation, as well as increase government revenue. My issue is, where does it stop? The treasury has just released a can of worms.
Arguably, capital gains are made by people who are in the business of making capital gains. It doesn't just fall upon some lucky guy walking down the street. Making capital gains is something that businessmen plan for and take advantage of. Therefore, as much as it may make sense to tax real estate companies on their capital gains, the buck, if the treasury is being fair, shouldn't stop there. Asset managers, insurance companies, private equity firms should all be taxed on their capital gains. If the treasury's reasoning on taxing real estate capital gains is to be implemented fairly, then it can be argued that the aforementioned parties are all in the business of making capital gains and as such, their capital gains should be taxed as regular business income. Food for thought for those at the treasury.