Under the new rules, banks cannot transfer property in case a borrower defaults on mortgage payments because they lack documentation to compute capital gains tax. FILE PHOTO | NMG The Kenya Revenue Authority shifted stamp duty and capital gains tax payments to its online portal in October last year, and demands that the two levies be paid simultaneously before transfer of property is effected.
The policy shift has thrown banks into a legal battle with the taxman after the lenders were left holding securities that they are unable to sell to recover their loans.
Borrowers are expected to upload details of capital gains on their property on the online portal before any transfer can be effected, thus barring auctioneers.
A Kenya Revenue Authority loophole has enabled mortgage loan defaulters to resist auction of their property, putting banks at risk of losing billions of shillings.
KRA’s shift of stamp duty and capital gains tax (CGT) payments to its online, i-Tax portal in October last year and its demand that both levies be paid simultaneously before transfer of property is effected has made it difficult for banks to auction defaulters’ assets.
Loan defaulters are, as per the new policy, required to upload details of capital gains on their property on the i-Tax portal before any transfer can be effected.
“Banks don’t have documentation such as the cost of the property to compute capital gains tax. This has made our transfer of assets very difficult,” said the Kenya Bankers Association chief executive, Habil Olaka, in an interview.
KBA is accusing the taxman of defying a court of appeal judgement that upheld the bankers’ argument that capital gains tax should be payable by property owners, and not holders of title deeds that are used as collateral security.
“CGT has to be paid by the owners of the assets who have these documents. Effectively as we stand today, KRA has not complied with the court ruling to adjust their system to separate the payment of the two levies,” said Mr Olaka.
The EastAfrican has also seen a petition that the Law Society of Kenya has written to Parliament seeking legislators’ intervention on the matter.
“This new procedure has led to delay in transactions as the required supporting documentation for the application is overly bureaucratic and subject to the arbitrary discretion of the KRA officers,” sates the petition signed by outgoing LSK president Allen Gichuhi.Kenyan banks’ total loan portfolio rose […]