Factors influencing capital gains tax performance in Thika district real estate
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Date
01-10-18
Authors
Gathuri, Jewel Wambui
Journal Title
Journal ISSN
Volume Title
Publisher
KESRA/JKUAT - Unpublished research project
Abstract
Capital gains tax is a tax imposed on the increase in value of marketable assets between the date of their acquisition or some fixed date and the time of disposal, when the tax becomes payable. Policy analysts have had diverging views of the effects of Capital Gains Tax on any given economy. Capital gains tax (CGT) has been reintroduced in Kenya as part of the government’s efforts to increase revenue and plug the budget deficit following an amendment in the 2014 Finance Act. This study therefore aimed at establishing the factors influencing the performance of CGT in Thika District Real Estate namely: lock in effect, costs and level of income. Stakeholders have raised a number of concerns on the reintroduction of this tax, whereas it is not in doubt that CGT is an important aspect of Kenyan economy, concerns have arisen on a number of issues especially since the revenue from CGT collection has faced a downward trend. Agency theory states that an agency problem occurs in such a relationship when asymmetric information is available to either party. Prospect theory states that people value gains and losses differently and as such will base decisions on perceive gains rather than losses to achieve fulfilling results for this study, the study adopted the use of the questionnaires as well as reports from KRA on remittance of the CGT and 3 top developers of real estate in Thika comprised the study’s target population of 50 respondents from which a sample size of 40% was used. The study adopted regression analysis using SPSS to establish the relationship between the dependent and the independent variables. The study findings show that Capital gains tax discouraged sales of appreciated assets because assets subject to capital gains taxation are generally held for a longer time by investors who hold assets, which have increased in value thus impacting Capital Gains Tax negatively. It was also found that the use of agents and brokers lead to high compliance costs for the tax payer and would at times lead to tax irregularities. The study also found that embracing technology would suffice in minimizing this loophole as well as ensure efficiency of tax collection. The findings revealed that 46 percent of the changes in tax performance in real estate are as a result of the factors identified in the research while 54 percent are others that are not included in this particular research. The study therefore recommends that; more variables should be used to widen the scope hence more comparisons. Kenya Revenue Authority take it upon themselves being the Tax Administration Authority to employ more technical staff and train them in interpreting the tax laws. The policy makers should introduce stringent measures in form of tax penalties and fines on the real estate firms and tax payers who violate and act as an obstacle in the administration of this tax
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Keywords
Capital Gains Tax, Thika