Kenya Revenue Authority to receive 0.6B Tax
By Samuel Migele
The Tax Appeal Tribunal held that Ruaraka Diversified Investm
ents Limited, a real estate company, was liable to pay Kshs.672, 150,
686 in corporation tax arising from the sale of the land in 2013 and
2015. The said land was for the development of the Garden City proj
ect. The tribunal reached the decision in a ruling
made on 1st April 2021.
The real estate company’s position was that the gain
realized was in the nature of capital gains and that they had written
to Kenya Revenue Authority seeking guidance as to whether Capital
Gains Tax or Corporation Tax should apply in the subject transactio
n. The company’s argued that KRA’s response that capital gains was
chargeable in such a transaction was a private ruling as provided in
Sections 65-
69 & 113 of the Tax Procedure Act, 2015 hence they had legitimate e
xpectation that only capital gains would be charged for the transacti
on.
KRA’s position on the other hand was that the gain realized from the
transfer of land to GC Retail limited and Safaricom PLC was realize
d in the normal course of business operations of the real estate com
pany and that the transaction was for the purpose of making profit,
as such the proceeds of the sale of land was
subject to Corporation Tax and not Capital Gains Tax.
In its judgement, the Tribunal found that the investment company h
ad made substantive misrepresentations to KRA when it sought for t
he private ruling as the transaction was not one-
off and the nature of business of the company was developing and s
elling land hence no legitimate expectation could arise from the ruli
ng.
The Tribunal further found that the action of holding property for a
period for the value to appreciate and thereafter selling
with the aim of making profit
constituted trade. Subsequently the income realized by the taxpayer
from the sale of land was business income and not capital gains.
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