'(Being an Appeal from the Judgment of the Tax Appeals Tribunal at Nairobi delivered on 4th April 2025 in Tax Appeals Tribunal Appeal No. E734 of 2024)
Background
1. Fine Spinners Limited, the appellant herein, was dissatisfied with the decision of the Tax Appeals Tribunal delivered on 4th April 2025 in Tax Appeal Tribunal Appeal No. E734 of 2024. The appellant filed this appeal through a memorandum of appeal dated April 15, 2025. The record of appeal is also dated 15th April 2025.
Grounds of Appeal
2. The appeal is based on the following grounds:
a. The Tribunal erred in law and in fact by finding that the tax point for Capital Gains Tax (CGT) was in the year 2023 when the provisions of Section 15 of the Finance Act, No. 22 of 2022 had taken effect and not 23rd December, 2022 when the appellant actually paid for the CGT.
b. The Tribunal erred in law and in fact by failing to appreciate that the respondent erred in applying a CGT rate of 15% as opposed to the 5% rate that was the rate applicable to the transaction.
c. The Tribunal erred in law and in fact by holding that the respondent applied the correct exchange rate on conversion of the purchase price from USD to Kenya shillings.
d. The Tribunal erred in law and in fact by failing to appreciate that the effect of declaring Paragraph 11A of the Eighth Schedule to the Income Tax Act, unconstitutional rendered the due date of paying CGT ambiguous, which ambiguity could only be interpreted in favour of the appellant.
e. The Tribunal erred in law and in fact by failing to appreciate the fact that the respondent, being an agency of the Government cannot profit from the Government’s own delays and inefficiencies occasioned by the transition to the Ardhisasa system to levy CGT on the appellant.
f. The Tribunal erred in law and in fact by failing to appreciate that the respondent’s conduct was unfair and infringed on the taxpayer’s rights and freedoms protected under Article 47 and Article 210 of the Constitution.
g. The Tribunal misapplied the law and facts and therefore arrived at the wrong decision.
3. The appellant therefore prays that this court allows the appeal and sets aside the decision of Tribunal dated 4th April 2025 with costs to the appellant.
Submissions
4. The appeal was heard on written submissions filed by both parties. The same are considered in the analysis here below.
5. In its submissions, the appellant raised the following issues for determination, which the respondent adopted as well:
a. Whether the Tribunal erred in law and in fact by finding that the tax point for CGT was in the year 2023 and not 23rd December 2022 when the appellant paid the CGT.
b. Whether the Tribunal erred in law and in fact by holding that the respondent applied the correct exchange rate on conversion of the purchase price from USD to KShs.
c. Whether the Tribunal erred in law and in fact by failing to appreciate that the High Court in the case of Law Society of Kenya v Kenya Revenue Authority & another [2017] KEHC 8539 (KLR) which declared paragraph 11A of the Eighth Schedule of the Income Tax Act unconstitutional, and which had the effect rendering the due date of paying CGT ambiguous which then could only be interpreted in favour of the appellant.
d. Whether the Tribunal erred in law and in fact by failing to appreciate the fact that the respondent being an agency of the government cannot profit from the government’s own delays and inefficiencies occasioned by the transition to the Ardhisasa system to levy CPG upon the appellant.
e. Whether the respondent’s conduct is unfair and infringes on the taxpayer’s rights and freedoms under Articles 10, 27, and 47 of the Constitution.
6. In my assessment, the dispute between the appellant and the respondent revolves around the determination of the tax point for the Capital Gains Tax for the transaction the subject of the dispute herein.
7. In determining this issue, the relevant law and the facts of the transaction have to be considered.
The Facts
8. The facts of the dispute herein seem straightforward because they are largely not in contention. What is in contention is the application of the law to those facts. Each party seems to adopt the interpretation that most suits its position: the appellant, with a view to minimizing tax payments, and the respondent, with a view to maximizing the returns on tax payable.
9. The facts leading to the tax assessment dispute between the appellant and the respondent, as gathered from the statement of facts filed by the parties before the TAT and this court, the submissions by counsels before the TAT, the judgment of the TAT, and submissions in this appeal, are as follows. The appellant sold property LR No. 209/20695 Block 57/113 situated in Nairobi Industrial Area to Laborex Limited at USD 6,000,000/= as per the Sale Agreement dated 14/11/2022. Clause 1.1(h) of the Sale Agreement explains the purchase price. It also states that VAT shall be added to this sum and paid by the purchaser.
10. The Sale Agreement was franked by the collector of stamp duty on 16th November 2022.
11. At the time of the sale the foreign exchange rate for the Kenyan shilling to the US Dollar was 1USD = KShs 120. That made the purchase price or transfer value of the property KShs 720,000,000/=.
12. Before 1st January 2023 the CGT rate was 5% and after deducting the cost of sale of the property which the appellant provided as KShs 200,000,000/= the appellant did a self-assessment of the CGT on the balance which brought it to a sum of KShs 26,000,000/=. The appellant duly paid this sum on 23/12/2022 to the respondent, who acknowledged receipt.
13. The foregoing facts are undisputed.
14. According to the appellant, the tax point for CGT in this case was at the time of sale of the property, which, according to it, was 23rd December 2022 when it acknowledged receipt of the funds from the purchaser. At this time, the rate of CGT was 5% and the exchange rate was 1 USD to KShs 120.
15. The appellant contends that it had received the money for the sale of the property and therefore was entitled and did pay the CGT at that time.
16. According to the respondent however, the tax point is at the time of registration of the transfer for the property and so the appellant could not have paid the CGT before the registration of the transfer of the property. The time of transfer of the property is not clear from the documents herein. The TAT found that the respondent applied the principle of “best judgment” in tax matters as provided for under section 31 of the Tax Procedures Act and determined the tax point was the date of payment of stamp duty which was 10th July 2023.
17. However, by this time, subsequent events that had taken place from the time the appellant paid the CGT on 23rd December 2022 would make the CGT go higher. The events were that on 1/1/2023, the rate of CGT went up from 5% to 15% and by 10/7/2023, the foreign currency exchange rate had also gone up to 1 USD to KShs 140.37.
18. These two events had the obvious effect of raising the CGT payable on the subject property as by them, the transfer value of the property rose to KShs 862,252,800/= and, not 720,000,000/= as declared by the appellant. The respondent made its assessment of the tax payable and demanded extra CGT from the appellant of KShs 77,797,617/= inclusive of interest.
19. The appellant raised an objection to the assessment of tax by the respondent, whereupon the respondent issued its objection decision dated 24/5/2024 confirming its assessment. The appellant appealed to the TAT. The issue in contention, therefore, became what the tax point for the CGT in this case was.
20. The TAT considered the dispute and made a judgment agreeing with the respondent’s assessment of the CGT payable by the appellant and upheld the objection decision of the respondent.
The law
21. The issue of what the tax point for purposes of computation of the CGT in the matter is, should be considered in the context of all the relevant provisions of the law under the Eighth Schedule of the Income Tax Act.
22. According to the appellant, in adopting the definition of “transfer” as proposed by the respondent, that is, that the transfer took place when stamp duty was paid on 10th July 2023, the Tribunal erred because that definition is not consistent with the law under the Eighth Schedule of the Income Tax Act.
23. Paragraph 2 of the Eighth Schedule of the Income Tax Act states:
“Subject to this Schedule, income in respect of which tax is chargeable under section 3(2)(f) is the whole of a gain which accrues to a company or an individual on or after 1st January, 2015 on the transfer of property situated in Kenya, whether or not the property was acquired before 1st January, 2015”.
24. Paragraph 1 of the Eighth Schedule of the Income Tax Act provides that:
"transfer" has the meaning assigned thereto in paragraph 6 of this Schedule;
"transfer value" has the meaning assigned thereto in paragraph 7 of this Schedule.
25. Paragraph 6(1)(a) defines the meaning of transfer as is relevant to this case as follows:
“Subject to this Schedule there is a transfer of property for the purposes of this Schedule where property is sold, exchanged, conveyed or otherwise disposed of in any manner whatever (including by way of gift), whether or not for consideration; …
26. The appellant submits that, considering the word “sold” as used in the meaning of the word transfer above, the sale of the subject property was concluded by executing the sale agreement, franking the same and subsequently receipt of payment of the purchase price by the appellant on 23rd December 2022 when the rate of CGT chageable was 5%.
27. According to the respondent however, the relevant provision of the law to look at is paragraph 4(1) and (2) of the 8th Schedule of the Income Tax Act which provides for the computation of gains as follows:
(1) The gain which accrues to a person on the transfer of any property is the amount by which the transfer value of the property exceeds the adjusted cost of the property.
(2) Where, in computing the gain accruing to a person on the transfer of any property, it is found that the adjusted cost of the property exceeds the transfer value of the property, the amount of the excess is the loss realized by the person on the transfer of the property.
28. I do not see how the above provision assists with the determination of the issue at hand since it relates to the cost of acquisition of the property. I note from the statement of facts that there was some initial argument between the parties on what the cost of acquisition of the property was, the appellant having provided a figure of KShs 200,000,000/= while the respondent had assessed it initially at 172,500,000/= and upon exchange of correspondences, it appears the value was left to be KShs 200,000,000/= as indicated by the appellant. This is discernible from the respondent’s submissions as reproduced in the TAT’s judgment at paragraph 34.
29. The respondent further submits, as it did before the TAT that CGT is payable upon registration of the transfer instrument in favour of the transferee as was held in the case of Law Society of Kenya v Kenya Revenue Authority & another [2017] KEHC 8539 (KLR) where the High Court found paragraph 11A of the Eighth Schedule of the Income Tax Act to be unconstitutional, null and void in the following terms:
a. “That a declaration be and is hereby issued declaring that Paragraph 11A of the Eight Schedule of the Income Tax Act is inconsistent with the provisions of paragraph 2 of the Eight Schedule of the Income Tax Act as read with paragraph 6 (1) (a) of the Eighth Schedule of the Income Tax Act and is therefore unconstitutional, null and void.
b. That a declaration be and is hereby issue that Paragraph 11A of the Eighth Schedule of the Income Tax Act violates the provisions of Article 10 (1) (2) and also Article 40 (2) (a) of the constitution of Kenya 2010 by depriving the public of their right over property and is therefore unconstitutional.
c. That a declaration be and is hereby issued that Paragraph 11A of the Eighth Schedule to the Income Tax Act violates the provisions of Articles 201 (b) (i) of the constitution of Kenya 2010 in that it unfairly imposes a tax burden on the public to the extent that it purports to impose an obligation on a tax payer to pay Capital Gains Tax on or before presenting the transfer instrument for registration instead of upon registration of the transfer instrument in favour of the transferee.”
Analysis
30. The respondent contends that the appellant did not provide any document to show that the transfer instrument was registered on or before 23rd December 2022. On the issue of providing sufficient evidence, the respondent cites the case of Commissioner Investigations and Enforcement v Kidero [2022] KEHC 52 (KLR).
31. The due date for payment of CGT is provided for under paragraph 11A of the Eighth Schedule of the Income Tax Act which is in the following terms:
11A. The due date for tax payable in respect of property transferred under this Part shall be the earlier of–
(a) receipt of the full purchase price by the vendor; or
(b) registration of the transfer.
32. This provision came into force on 1st July 2023 upon repeal of the previous provision, following the High Court’s declaration of the previous provision to be unconstitutional. The repealed paragraph 11A provided as follows:
11A. The due date for tax payable in respect of property transferred under this Part shall be on or before the date of application for transfer of the property is made at the relevant Lands Office.
33. The appellant submits that, following the declaration of paragraph 11A as unconstitutional and before the new paragraph was enacted, there was ambiguity on the due date for payment of CGT in respect of property such as the case herein and therefore a taxpayer could pay the CGT at any point in the transaction. In those circumstances, the ambiguity could only be resolved in favour of the appellant. The appellant supports this submission with the case of Commissioner of Domestic Taxes v Pevans East Africa Limited & 6 others [2022] KEHC 10392 (KLR).
34. It is the appellant’s further submission that the delay in the registration of the transfer was occasioned by delays in the transition to the Ardhi Sasa system at the Lands Registry. Otherwise, that it had lodged all the documents of transfer. That the delay in paying stamp duty, which was upon the purchaser and not the appellant as the vendor cannot be visited upon the appellant as was done by the TAT. To support this contention, the appellant produced a letter dated 21st November 2022 to the Ministry of Lands concerning the delay and an acknowledgment by the Ministry of Lands dated 28th November 2022 wherein it committed to fast-track the process.
35. The respondent on its part contends and the TAT agreed that the appellant should have provided it with the deed of transfer registered before 1st January 2023 to justify the appellant’s payment of the CGT at the rate of 5%.
36. In my assessment, the respondent’s contention cannot be supported in the circumstances of this case for various reasons. First, the appellant’s case has never been that it had registered the transfer before 1st January 2023. There was no such registration and therefore it did not have a deed of transfer to present to the respondent. However, its position is explained by its legitimate expectation that the transfer would be registered by this time. It based its expectation on the fact that it had lodged the documents for registration in good time on 23rd December 2022. That the documents could not be registered in time due to transition challenges from one system of registration to another at the time at the Ministry of Lands could not be visited upon it.
37. It is not disputed that the appellant made a correct self-assessment of the CGT upon sale of the property at the rate prevailing at the time and paid. Holding all matters constant, neither the appellant nor the respondent was aware that the rate of CGT was going to change by 1st January 2023. Of course, it is quite possible that the appellant knew of the impending amendment to the law to increase the rate of the CGT and in that case decided to take advantage of the prevailing rate to pay the tax after satisfying the requirements for the same. I would find nothing wrong with that approach at all. It satisfied its obligation to pay the tax as required. It would appear that the respondent is insisting that the appellant ought to have waited until its document of transfer was registered for it to do the self-assessment and then pay the CGT tax, when the respondent had no power over when the registration would go through, and the time of registration by the Lands Registry was uncertain, is clearly untenable.
38. Secondly, the amended paragraph 11A, of the Eighth Schedule to the Income Tax Act now provides for two options as the due date when CGT is payable unlike the previous provision that was declared unconstitutional; either on receipt of the full purchase price by the vendor or on registration of the transfer. This amendment has to be considered with the previous provision that was declared unconstitutional and what the High Court proposed to be the due date in mind. It is apparent that in providing for these two options, the amendment addressed the prevailing situation before the declaration of unconstitutionality, where one was required to pay the CGT before registration of the transfer, and the holding by the High Court that the due date was upon registration of the ransfer. So that, when the appellant’s case is considered, it clearly falls in the first option while the position taken by the respondent falls in the second option.
39. Considering all these circumstances, I find that it was completely unnecessary for the TAT to delve into the issue of when the money paid into the escrow account would be released to the appellant in determining when the sale of the property took place. There was evidence from the appellant that it was satisfied by whatever arrangements provided in the agreement for sale, that it had received the money for the sale of the property. Paragraph 9 of the appellant’s statement of facts before the TAT points to the evidence by the appellant to show that it had received the funds. Who else would confirm or acknowledge receipt of proceeds of sale other than the vendor? Such acknowledgment was sufficient to show that the sale had been completed.
40. Again, I say that the appellant may have done this for purposes of avoiding to pay a higher tax due to the impending increase in the rate of CGT as from 1st January 2023 and I do not find anything untoward with that. It was not evading to pay the tax but taking full advantage of the favourable circumstances prevailing at the time as opposed to what was impending.
41. Furthermore, the delay in payment of stamp duty and registration of the transfer documents could not be attributed to the appellant. Payment of stamp duty was on the purchaser. Stamp duty was not going to be increased by the new law but CGT was. Moreover, even if the purchaser was ready to pay before the new rate of CGT took effect, the government land registration system had delays.
42. Finally, when the new law on the due date for CGT tax payable came into effect, it vindicated the appellant by providing that one of the options was the date of receipt of the full purchase price by the vendor, which option was the one relied upon by the appellant herein.
43. The TAT made a most interesting finding that the tax point for the CGT was neither 23rd December 2022 when the applicable rate was 5% nor 10th July 2023 as asserted by the respondent but that it was certainly in 2023 when the applicable rate had increased to 15%. Here, the Tribunal rejected the arguments by both parties but left the issue unresolved. Indeed, at paragraph 68 of the judgment, the TAT stated that it was unable to determine the exact date when the CGT became payable. There can only be one tax point. The TAT was bound to get into those headwinds because it is a fact that the date of the registration of the transfer was not certain as it was not done, perhaps caused by the challenges in the transition to the Ardhisasa system. Whereas, the respondent was insisting that the appellant should have provided evidence that the transfer had been registered on 23rd December 2022, it could not put a finger to the due date and that is why it had to bring in the provision that it deemed the date of registration to have been in 2023. Yet, it did not want to believe the appellant when it said that the registration of the transfer document was outside its ability. Luckily, the amendment to paragraph 11A has taken care of the situation.
44. From the foregoing, it is clear that the respondent did not err in computing the due date for the payment of the CGT as 23rd December 2022 when the rate was 5%. The finding by the TAT that the transaction took place after 1st January 2023 was in error and has to be set aside.
45. The TAT also found that there was a dispute over the foreign exchange rate applicable, but I do not think so. The respondent was not claiming that the appellant had applied the wrong foreign exchange rate of 1 USD to KShs 120/= as at 23rd December 2022. The entire claim was based on the determination of the tax point, such that once this was determined, the rest of the issues fell into place. The issue of the VAT declaration in August 2023 was not helping matters any further. The TAT correctly found that the applicable foreign exchange conversion rate was when the CGT became due but was wrong, from the explanations hereinabove that this date was the date when the instrument of transfer was registered. There was no such date of registration.
46. Consequently, I find that the TAT was in error in finding that the tax point for CGT in this case was in the year 2023 and not 2022. The judgment of the TAT dated 4th April 2025 is hereby set aside and substituted with a finding setting aside the decision of the respondent on its tax assessment of the amount due from the appellant as CGT, the appellant having correctly assessed and paid the same on 23rd December 2022.
47. The appeal is allowed with costs to the appellant.
48. It is hereby so ordered.
Dated, Signed and Delivered on the virtual platform Teams this 25th day of August 2025.
ANDAYI W. F.
JUDGE
In the presence of:
Maero with Ms Koskey for the appellant.
Ms Ng’ang’a for the Respondent.
Carlos: Court Assistant.
'
Background
1. Fine Spinners Limited, the appellant herein, was dissatisfied with the decision of the Tax Appeals Tribunal delivered on 4th April 2025 in Tax Appeal Tribunal Appeal No. E734 of 2024. The appellant filed this appeal through a memorandum of appeal dated April 15, 2025. The record of appeal is also dated 15th April 2025.
Grounds of Appeal
2. The appeal is based on the following grounds:
a. The Tribunal erred in law and in fact by finding that the tax point for Capital Gains Tax (CGT) was in the year 2023 when the provisions of Section 15 of the Finance Act, No. 22 of 2022 had taken effect and not 23rd December, 2022 when the appellant actually paid for the CGT.
b. The Tribunal erred in law and in fact by failing to appreciate that the respondent erred in applying a CGT rate of 15% as opposed to the 5% rate that was the rate applicable to the transaction.
c. The Tribunal erred in law and in fact by holding that the respondent applied the correct exchange rate on conversion of the purchase price from USD to Kenya shillings.
d. The Tribunal erred in law and in fact by failing to appreciate that the effect of declaring Paragraph 11A of the Eighth Schedule to the Income Tax Act, unconstitutional rendered the due date of paying CGT ambiguous, which ambiguity could only be interpreted in favour of the appellant.
e. The Tribunal erred in law and in fact by failing to appreciate the fact that the respondent, being an agency of the Government cannot profit from the Government’s own delays and inefficiencies occasioned by the transition to the Ardhisasa system to levy CGT on the appellant.
f. The Tribunal erred in law and in fact by failing to appreciate that the respondent’s conduct was unfair and infringed on the taxpayer’s rights and freedoms protected under Article 47 and Article 210 of the Constitution.
g. The Tribunal misapplied the law and facts and therefore arrived at the wrong decision.
3. The appellant therefore prays that this court allows the appeal and sets aside the decision of Tribunal dated 4th April 2025 with costs to the appellant.
Submissions
4. The appeal was heard on written submissions filed by both parties. The same are considered in the analysis here below.
5. In its submissions, the appellant raised the following issues for determination, which the respondent adopted as well:
a. Whether the Tribunal erred in law and in fact by finding that the tax point for CGT was in the year 2023 and not 23rd December 2022 when the appellant paid the CGT.
b. Whether the Tribunal erred in law and in fact by holding that the respondent applied the correct exchange rate on conversion of the purchase price from USD to KShs.
c. Whether the Tribunal erred in law and in fact by failing to appreciate that the High Court in the case of Law Society of Kenya v Kenya Revenue Authority & another [2017] KEHC 8539 (KLR) which declared paragraph 11A of the Eighth Schedule of the Income Tax Act unconstitutional, and which had the effect rendering the due date of paying CGT ambiguous which then could only be interpreted in favour of the appellant.
d. Whether the Tribunal erred in law and in fact by failing to appreciate the fact that the respondent being an agency of the government cannot profit from the government’s own delays and inefficiencies occasioned by the transition to the Ardhisasa system to levy CPG upon the appellant.
e. Whether the respondent’s conduct is unfair and infringes on the taxpayer’s rights and freedoms under Articles 10, 27, and 47 of the Constitution.
6. In my assessment, the dispute between the appellant and the respondent revolves around the determination of the tax point for the Capital Gains Tax for the transaction the subject of the dispute herein.
7. In determining this issue, the relevant law and the facts of the transaction have to be considered.
The Facts
8. The facts of the dispute herein seem straightforward because they are largely not in contention. What is in contention is the application of the law to those facts. Each party seems to adopt the interpretation that most suits its position: the appellant, with a view to minimizing tax payments, and the respondent, with a view to maximizing the returns on tax payable.
9. The facts leading to the tax assessment dispute between the appellant and the respondent, as gathered from the statement of facts filed by the parties before the TAT and this court, the submissions by counsels before the TAT, the judgment of the TAT, and submissions in this appeal, are as follows. The appellant sold property LR No. 209/20695 Block 57/113 situated in Nairobi Industrial Area to Laborex Limited at USD 6,000,000/= as per the Sale Agreement dated 14/11/2022. Clause 1.1(h) of the Sale Agreement explains the purchase price. It also states that VAT shall be added to this sum and paid by the purchaser.
10. The Sale Agreement was franked by the collector of stamp duty on 16th November 2022.
11. At the time of the sale the foreign exchange rate for the Kenyan shilling to the US Dollar was 1USD = KShs 120. That made the purchase price or transfer value of the property KShs 720,000,000/=.
12. Before 1st January 2023 the CGT rate was 5% and after deducting the cost of sale of the property which the appellant provided as KShs 200,000,000/= the appellant did a self-assessment of the CGT on the balance which brought it to a sum of KShs 26,000,000/=. The appellant duly paid this sum on 23/12/2022 to the respondent, who acknowledged receipt.
13. The foregoing facts are undisputed.
14. According to the appellant, the tax point for CGT in this case was at the time of sale of the property, which, according to it, was 23rd December 2022 when it acknowledged receipt of the funds from the purchaser. At this time, the rate of CGT was 5% and the exchange rate was 1 USD to KShs 120.
15. The appellant contends that it had received the money for the sale of the property and therefore was entitled and did pay the CGT at that time.
16. According to the respondent however, the tax point is at the time of registration of the transfer for the property and so the appellant could not have paid the CGT before the registration of the transfer of the property. The time of transfer of the property is not clear from the documents herein. The TAT found that the respondent applied the principle of “best judgment” in tax matters as provided for under section 31 of the Tax Procedures Act and determined the tax point was the date of payment of stamp duty which was 10th July 2023.
17. However, by this time, subsequent events that had taken place from the time the appellant paid the CGT on 23rd December 2022 would make the CGT go higher. The events were that on 1/1/2023, the rate of CGT went up from 5% to 15% and by 10/7/2023, the foreign currency exchange rate had also gone up to 1 USD to KShs 140.37.
18. These two events had the obvious effect of raising the CGT payable on the subject property as by them, the transfer value of the property rose to KShs 862,252,800/= and, not 720,000,000/= as declared by the appellant. The respondent made its assessment of the tax payable and demanded extra CGT from the appellant of KShs 77,797,617/= inclusive of interest.
19. The appellant raised an objection to the assessment of tax by the respondent, whereupon the respondent issued its objection decision dated 24/5/2024 confirming its assessment. The appellant appealed to the TAT. The issue in contention, therefore, became what the tax point for the CGT in this case was.
20. The TAT considered the dispute and made a judgment agreeing with the respondent’s assessment of the CGT payable by the appellant and upheld the objection decision of the respondent.
The law
21. The issue of what the tax point for purposes of computation of the CGT in the matter is, should be considered in the context of all the relevant provisions of the law under the Eighth Schedule of the Income Tax Act.
22. According to the appellant, in adopting the definition of “transfer” as proposed by the respondent, that is, that the transfer took place when stamp duty was paid on 10th July 2023, the Tribunal erred because that definition is not consistent with the law under the Eighth Schedule of the Income Tax Act.
23. Paragraph 2 of the Eighth Schedule of the Income Tax Act states:
“Subject to this Schedule, income in respect of which tax is chargeable under section 3(2)(f) is the whole of a gain which accrues to a company or an individual on or after 1st January, 2015 on the transfer of property situated in Kenya, whether or not the property was acquired before 1st January, 2015”.
24. Paragraph 1 of the Eighth Schedule of the Income Tax Act provides that:
"transfer" has the meaning assigned thereto in paragraph 6 of this Schedule;
"transfer value" has the meaning assigned thereto in paragraph 7 of this Schedule.
25. Paragraph 6(1)(a) defines the meaning of transfer as is relevant to this case as follows:
“Subject to this Schedule there is a transfer of property for the purposes of this Schedule where property is sold, exchanged, conveyed or otherwise disposed of in any manner whatever (including by way of gift), whether or not for consideration; …
26. The appellant submits that, considering the word “sold” as used in the meaning of the word transfer above, the sale of the subject property was concluded by executing the sale agreement, franking the same and subsequently receipt of payment of the purchase price by the appellant on 23rd December 2022 when the rate of CGT chageable was 5%.
27. According to the respondent however, the relevant provision of the law to look at is paragraph 4(1) and (2) of the 8th Schedule of the Income Tax Act which provides for the computation of gains as follows:
(1) The gain which accrues to a person on the transfer of any property is the amount by which the transfer value of the property exceeds the adjusted cost of the property.
(2) Where, in computing the gain accruing to a person on the transfer of any property, it is found that the adjusted cost of the property exceeds the transfer value of the property, the amount of the excess is the loss realized by the person on the transfer of the property.
28. I do not see how the above provision assists with the determination of the issue at hand since it relates to the cost of acquisition of the property. I note from the statement of facts that there was some initial argument between the parties on what the cost of acquisition of the property was, the appellant having provided a figure of KShs 200,000,000/= while the respondent had assessed it initially at 172,500,000/= and upon exchange of correspondences, it appears the value was left to be KShs 200,000,000/= as indicated by the appellant. This is discernible from the respondent’s submissions as reproduced in the TAT’s judgment at paragraph 34.
29. The respondent further submits, as it did before the TAT that CGT is payable upon registration of the transfer instrument in favour of the transferee as was held in the case of Law Society of Kenya v Kenya Revenue Authority & another [2017] KEHC 8539 (KLR) where the High Court found paragraph 11A of the Eighth Schedule of the Income Tax Act to be unconstitutional, null and void in the following terms:
a. “That a declaration be and is hereby issued declaring that Paragraph 11A of the Eight Schedule of the Income Tax Act is inconsistent with the provisions of paragraph 2 of the Eight Schedule of the Income Tax Act as read with paragraph 6 (1) (a) of the Eighth Schedule of the Income Tax Act and is therefore unconstitutional, null and void.
b. That a declaration be and is hereby issue that Paragraph 11A of the Eighth Schedule of the Income Tax Act violates the provisions of Article 10 (1) (2) and also Article 40 (2) (a) of the constitution of Kenya 2010 by depriving the public of their right over property and is therefore unconstitutional.
c. That a declaration be and is hereby issued that Paragraph 11A of the Eighth Schedule to the Income Tax Act violates the provisions of Articles 201 (b) (i) of the constitution of Kenya 2010 in that it unfairly imposes a tax burden on the public to the extent that it purports to impose an obligation on a tax payer to pay Capital Gains Tax on or before presenting the transfer instrument for registration instead of upon registration of the transfer instrument in favour of the transferee.”
Analysis
30. The respondent contends that the appellant did not provide any document to show that the transfer instrument was registered on or before 23rd December 2022. On the issue of providing sufficient evidence, the respondent cites the case of Commissioner Investigations and Enforcement v Kidero [2022] KEHC 52 (KLR).
31. The due date for payment of CGT is provided for under paragraph 11A of the Eighth Schedule of the Income Tax Act which is in the following terms:
11A. The due date for tax payable in respect of property transferred under this Part shall be the earlier of–
(a) receipt of the full purchase price by the vendor; or
(b) registration of the transfer.
32. This provision came into force on 1st July 2023 upon repeal of the previous provision, following the High Court’s declaration of the previous provision to be unconstitutional. The repealed paragraph 11A provided as follows:
11A. The due date for tax payable in respect of property transferred under this Part shall be on or before the date of application for transfer of the property is made at the relevant Lands Office.
33. The appellant submits that, following the declaration of paragraph 11A as unconstitutional and before the new paragraph was enacted, there was ambiguity on the due date for payment of CGT in respect of property such as the case herein and therefore a taxpayer could pay the CGT at any point in the transaction. In those circumstances, the ambiguity could only be resolved in favour of the appellant. The appellant supports this submission with the case of Commissioner of Domestic Taxes v Pevans East Africa Limited & 6 others [2022] KEHC 10392 (KLR).
34. It is the appellant’s further submission that the delay in the registration of the transfer was occasioned by delays in the transition to the Ardhi Sasa system at the Lands Registry. Otherwise, that it had lodged all the documents of transfer. That the delay in paying stamp duty, which was upon the purchaser and not the appellant as the vendor cannot be visited upon the appellant as was done by the TAT. To support this contention, the appellant produced a letter dated 21st November 2022 to the Ministry of Lands concerning the delay and an acknowledgment by the Ministry of Lands dated 28th November 2022 wherein it committed to fast-track the process.
35. The respondent on its part contends and the TAT agreed that the appellant should have provided it with the deed of transfer registered before 1st January 2023 to justify the appellant’s payment of the CGT at the rate of 5%.
36. In my assessment, the respondent’s contention cannot be supported in the circumstances of this case for various reasons. First, the appellant’s case has never been that it had registered the transfer before 1st January 2023. There was no such registration and therefore it did not have a deed of transfer to present to the respondent. However, its position is explained by its legitimate expectation that the transfer would be registered by this time. It based its expectation on the fact that it had lodged the documents for registration in good time on 23rd December 2022. That the documents could not be registered in time due to transition challenges from one system of registration to another at the time at the Ministry of Lands could not be visited upon it.
37. It is not disputed that the appellant made a correct self-assessment of the CGT upon sale of the property at the rate prevailing at the time and paid. Holding all matters constant, neither the appellant nor the respondent was aware that the rate of CGT was going to change by 1st January 2023. Of course, it is quite possible that the appellant knew of the impending amendment to the law to increase the rate of the CGT and in that case decided to take advantage of the prevailing rate to pay the tax after satisfying the requirements for the same. I would find nothing wrong with that approach at all. It satisfied its obligation to pay the tax as required. It would appear that the respondent is insisting that the appellant ought to have waited until its document of transfer was registered for it to do the self-assessment and then pay the CGT tax, when the respondent had no power over when the registration would go through, and the time of registration by the Lands Registry was uncertain, is clearly untenable.
38. Secondly, the amended paragraph 11A, of the Eighth Schedule to the Income Tax Act now provides for two options as the due date when CGT is payable unlike the previous provision that was declared unconstitutional; either on receipt of the full purchase price by the vendor or on registration of the transfer. This amendment has to be considered with the previous provision that was declared unconstitutional and what the High Court proposed to be the due date in mind. It is apparent that in providing for these two options, the amendment addressed the prevailing situation before the declaration of unconstitutionality, where one was required to pay the CGT before registration of the transfer, and the holding by the High Court that the due date was upon registration of the ransfer. So that, when the appellant’s case is considered, it clearly falls in the first option while the position taken by the respondent falls in the second option.
39. Considering all these circumstances, I find that it was completely unnecessary for the TAT to delve into the issue of when the money paid into the escrow account would be released to the appellant in determining when the sale of the property took place. There was evidence from the appellant that it was satisfied by whatever arrangements provided in the agreement for sale, that it had received the money for the sale of the property. Paragraph 9 of the appellant’s statement of facts before the TAT points to the evidence by the appellant to show that it had received the funds. Who else would confirm or acknowledge receipt of proceeds of sale other than the vendor? Such acknowledgment was sufficient to show that the sale had been completed.
40. Again, I say that the appellant may have done this for purposes of avoiding to pay a higher tax due to the impending increase in the rate of CGT as from 1st January 2023 and I do not find anything untoward with that. It was not evading to pay the tax but taking full advantage of the favourable circumstances prevailing at the time as opposed to what was impending.
41. Furthermore, the delay in payment of stamp duty and registration of the transfer documents could not be attributed to the appellant. Payment of stamp duty was on the purchaser. Stamp duty was not going to be increased by the new law but CGT was. Moreover, even if the purchaser was ready to pay before the new rate of CGT took effect, the government land registration system had delays.
42. Finally, when the new law on the due date for CGT tax payable came into effect, it vindicated the appellant by providing that one of the options was the date of receipt of the full purchase price by the vendor, which option was the one relied upon by the appellant herein.
43. The TAT made a most interesting finding that the tax point for the CGT was neither 23rd December 2022 when the applicable rate was 5% nor 10th July 2023 as asserted by the respondent but that it was certainly in 2023 when the applicable rate had increased to 15%. Here, the Tribunal rejected the arguments by both parties but left the issue unresolved. Indeed, at paragraph 68 of the judgment, the TAT stated that it was unable to determine the exact date when the CGT became payable. There can only be one tax point. The TAT was bound to get into those headwinds because it is a fact that the date of the registration of the transfer was not certain as it was not done, perhaps caused by the challenges in the transition to the Ardhisasa system. Whereas, the respondent was insisting that the appellant should have provided evidence that the transfer had been registered on 23rd December 2022, it could not put a finger to the due date and that is why it had to bring in the provision that it deemed the date of registration to have been in 2023. Yet, it did not want to believe the appellant when it said that the registration of the transfer document was outside its ability. Luckily, the amendment to paragraph 11A has taken care of the situation.
44. From the foregoing, it is clear that the respondent did not err in computing the due date for the payment of the CGT as 23rd December 2022 when the rate was 5%. The finding by the TAT that the transaction took place after 1st January 2023 was in error and has to be set aside.
45. The TAT also found that there was a dispute over the foreign exchange rate applicable, but I do not think so. The respondent was not claiming that the appellant had applied the wrong foreign exchange rate of 1 USD to KShs 120/= as at 23rd December 2022. The entire claim was based on the determination of the tax point, such that once this was determined, the rest of the issues fell into place. The issue of the VAT declaration in August 2023 was not helping matters any further. The TAT correctly found that the applicable foreign exchange conversion rate was when the CGT became due but was wrong, from the explanations hereinabove that this date was the date when the instrument of transfer was registered. There was no such date of registration.
46. Consequently, I find that the TAT was in error in finding that the tax point for CGT in this case was in the year 2023 and not 2022. The judgment of the TAT dated 4th April 2025 is hereby set aside and substituted with a finding setting aside the decision of the respondent on its tax assessment of the amount due from the appellant as CGT, the appellant having correctly assessed and paid the same on 23rd December 2022.
47. The appeal is allowed with costs to the appellant.
48. It is hereby so ordered.
Dated, Signed and Delivered on the virtual platform Teams this 25th day of August 2025.
ANDAYI W. F.
JUDGE
In the presence of:
Maero with Ms Koskey for the appellant.
Ms Ng’ang’a for the Respondent.
Carlos: Court Assistant.
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