In a major setback for Fine Spinners Limited, a Nairobi-based textile company, the Kenya Revenue Authority (KRA) has successfully enforced an additional KSh 77.8 million in Capital Gains Tax (CGT) following a delayed property registration. The case underscores how land registration tax delays can significantly increase tax liability due to shifting legal frameworks and exchange rates.
📉 The Dispute: Sale Timing vs. Registration Date
At the center of the issue was a US$6 million sale of industrial property in Nairobi’s Industrial Area to Laborex Limited. Fine Spinners declared and paid 5% CGT in December 2022, aligning with the Finance Act and exchange rate at the time.
However, KRA took a different stance, asserting that the effective date of the transaction was not the contract date or payment date, but July 2023, when:
- Stamp duty was paid
- Title was officially transferred
- Land registration was completed
By then, Kenya’s CGT rate had risen to 15%, following amendments under the Finance Act 2022.
💵 Impact of Exchange Rate Discrepancy
The Tribunal also sided with KRA regarding currency conversion. While Fine Spinners applied a KSh 120/USD rate, KRA used the July 2023 rate of KSh 140.37/USD, increasing the transaction’s KSh value by over 120 million—a move that amplified the taxable gain.
⚖️ Tribunal Rejects Appeal
Fine Spinners challenged the revised CGT assessment, claiming the decision was:
- Legally flawed
- Procedurally unfair
- Influenced by government-induced registration delays
The company urged the Tribunal to annul both the May 2024 objection decision and the February 2024 tax notice, stating that delays at the land registry were beyond its control.
Yet, the Tribunal dismissed the appeal, ruling that:
- CGT liability arises at the time of formal registration, not agreement or payment
- Government delays do not excuse compliance obligations
- Fine Spinners failed to provide audited documentation for cost basis claims
🧾 Legal Takeaway for Property Sellers
The case highlights critical lessons for real estate transactions in Kenya:
- Capital gains tax is tied to legal registration, not contractual agreements
- Tax rates and exchange rates at registration time apply
- Documentary evidence is essential to challenge assessments
“Taxable events are determined by statute—not circumstance,” the Tribunal emphasized.
🧠 Final Thought
This ruling sets a precedent for how land registration tax delays can shift the financial burden dramatically. For property sellers and investors in Kenya, the case signals the importance of aligning legal and tax timelines—or risk paying a steep price.
