Factors influencing capital gains tax revenue collection in Kenya
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Date
01-10-18
Authors
Ogega, Margaret Nyakoboke
Journal Title
Journal ISSN
Volume Title
Publisher
KESRA/JKUAT - Unpublished research project
Abstract
The imposition and collection of taxes is simply one of the fundamental policy instruments used to achieve governmental social and economic goals. The Finance Act 2014 reintroduced capital gains tax effective January, 2015 with applicable rate of 5% in order to widen the tax base, promote equity in taxation and obtain funds to bridge the budget deficit. Capital gains tax is levied on net gains realized on sale of land, sale of building, privately traded shares and intangible assets with respect to companies. The general objective of the study was to determine the factors influencing capital gains tax revenue collection in Kenya. The influencing factors were classified under headings; capital gains tax rate, capital gains tax structure, capital gains tax knowledge and capital gains compliance strategies. The respondents were staff in Kenya Revenue Authority which is in charge with the responsibility of administration of tax laws and collection of revenue. The study focused on one of the domestic taxes the capital gains tax. The research design adopted was a descriptive research design. The target population comprised of One hundred fifty (150) employees of the Kenya Revenue Authority that are charged with the responsibility of administration and collection Capital gain tax. The study took a census approach targeting all the officers charged with the responsibility of CGT excluding the commissioners countrywide. The total number of respondents was one thirty-three (133) employees involved directly in capital gains tax collection. The study collected data using a structured questionnaire, which consisted of four sections. Primary data was obtained directly from the respondents, where the researcher used both personal administration and drop and pick later method. Before the actual data collection process, a pilot test was carried out to determine validity and reliability of the data collection tool. In data analysis, both descriptive and inferential statistics that entailed conducting Pearson’s correlation analysis was used to measure the relationship between variables. The analysis was done with the aid of SPSS software. The study revealed that Capital gains tax rate had significant contribution to capital gain tax revenue collection. The structure of capital gains tax including the inflation and indexation, historical documentation and understanding of the CGT computation was found to impact on the capital gains tax revenue collection. The CGT compliance strategies on twining of CGT with stamp duty payment, Stakeholder engagements, has improved Capital Gain Tax collection marketing, stakeholder engagements, Automation of CGT processes and review of tax laws on capital gains tax laws contributed to enhanced CGT, thus enhancing income tax revenue collection. The study recommends that in view of the fact that CGT administration changes have an impact on CGT revenue collection, Kenya Revenue Authority and the associated stakeholders such as National Treasury, should establish measures to mitigate the challenges of structure of the CGT such as taking into account inflation and indexation, harmonization of the capital gains tax system with the East Africa member states and alignment of the Stamp Duty tax laws and Income Tax laws so as to enforce the simultaneous payment stamp duty and capital gains tax. There are also gaps in the 8th Schedule of the Income Tax laws and there is a need to review the law to seal the gap that has led key stakeholders to take legal actions on the process of collecting capital gains tax. The changes in the Finance act need to be incorporated in the iTAX system to mitigate taxpayers’ challenges when declaring CGT. There is also need for maintaining a single portal for collection of capital gains tax and stamp duty tax to promote efficiency, accuracy and accountability.
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Keywords
Capital Gains Tax, Revenue