The KRA has issued a public notice (please see attached) requiring the payment of stamp duty and capital gains tax to be initiated through the iTax platform effective 1st October 2016. The iTax system is an online integrated system for managing the payment of all taxes.
- Stamp Duty
All payments for stamp duty are to be initiated through the iTax platform. The SDA1 form (Stamp Duty Declaration, Assessment and Pay-in Slip) will no longer be used and any person who is obligated to pay stamp duty will be required to log on to iTax and generate an e-slip with a Payment Registration Number (“PRN”) . The e-slip will then be presented to any one of the designated commercial banks, for payment of the stamp duty.
This requirement applies to stamp duty on all documents, including without limitation, transfers of property, security documents, agreements and powers of attorney. The person responsible for payment of stamp duty on the specific document is required to initiate the process through the iTax platform. This means that with respect to bank security documents, for example, banks would be required to initiate the process on iTax. Further clarification will be required on whether an advocate acting for a bank can initiate this process on behalf the bank.
To access the iTax portal and pay stamp duty, one must have first obtained a PIN and be registered on iTax. For planning purposes, we would therefore recommend that a PIN be obtained at the earliest opportunity so that the transaction is not delayed. If you need assistance with obtaining a PIN please let us know and we can assist.
- Capital Gains Tax
Payment of Capital Gains Tax (“CGT”) should also be initiated on the iTax platform. The seller must first complete a manual return and compute the gain realized from the disposal of the property along with the CGT payable. An e-slip with a PRN must then be generated for use in paying the tax. We understand that iTax is currently being updated to allow for an online CGT return but in the meantime the manual returns will still be in use.
Transfer of Property
According to the public notice, the process of completing the transfer of property will entail the simultaneous payment of stamp duty and CGT. The implication is that the Ministry of Lands may in future decline to transfer the property until confirmation of payment of both stamp duty and CGT is provided.
This would present a number of practical challenges. Firstly, CGT and stamp duty are paid by the seller and purchaser respectively and neither should be held at ransom by the failure of the other to pay taxes.
Secondly, in most sale transactions, the purchase price is only released to the seller once the registration of the transfer of the property has been completed. Where a purchase is financed, the secured balance of the purchase price will normally be released by the financing bank once the transfer and security documents are registered. In addition, a sale transaction can still be terminated by either party at this stage before the registration of the transfer.
Requiring sellers to pay CGT before the conclusion of the sale and release of the purchase price to them will also be a challenge for those sellers who were relying on the sale proceeds to pay the CGT. Although the Income Tax Act requires the seller to pay CGT “..on or before the date the application for transfer of the property is made at the relevant lands office” it would be unreasonable to make the payment of CGT a condition for the transfer of the property.
Should you require additional information or have any query on payment of Stamp Duty and Capital Gains Tax, please contact us.