High Court Rules on CGT Tax Point for Share Transfers.
High Court Clarifies CGT Tax Point in Share Transfers: Lessons from Haria v Commissioner of Domestic Taxes.
In a decision that brings much needed clarity to the timing of Capital Gains Tax (CGT) liabilities on share transfers, the High Court of Kenya in Haria v Commissioner of Domestic Taxes ([2025] KEHC 11504 (KLR)) overturned a ruling by the Tax Appeals Tribunal. Delivered on August 1, 2025, by Justice P.J.O. Otieno, the judgment emphasizes that CGT accrues at the point of actual transfer typically when shares are sold and paid for rather than upon administrative stamping or registration. This ruling has significant implications for taxpayers navigating year-end transactions amid rate changes, particularly following the CGT rate hike from 5% to 15% effective January 1, 2023.
If you’re a business owner, investor, or tax advisor dealing with share disposals, this case underscores the importance of documenting transfer dates meticulously to avoid disputes with the Kenya Revenue Authority (KRA). Let’s break down the facts, key issues, and the court’s reasoning.
Case Background
The dispute stemmed from a corporate restructuring where the appellant, transferred shares in Harleys Limited to Westlands Heights Limited on December 30, 2022. The share transfer agreement was dated December 29, 2022, and the appellant self-assessed and paid CGT at the then-prevailing rate of 5%.
The agreement was then presented to the Lands Registry for stamping on December 30, 2022, but was only stamped on January 4, 2023—after the CGT rate increased to 15% under the Finance Act, 2022. After the stamping, KRA issued an additional assessment demanding over KES 416 million arguing that the tax point was the stamping date in 2023. They also claimed that the appellant had under-declared the share consideration by at least KES 792 million and an adjusted cost of over KES 295 million.
The appellant objected to the assessment and lodged an appeal to the Tax Appeals Tribunal. That intial appeal was subsequently dismissed on June 28, 2024, prompting this High Court appeal. The Tribunal had relied on the unconstitutionality of Paragraph 11A of the Eighth Schedule to the Income Tax Act (ITA) (as declared in Law Society of Kenya v Kenya Revenue Authority & AG [2017]) and interpreted “transfer” as occurring upon registration.
Key Issues Before the Court
The High Court narrowed the appeal—limited to matters of law under Section 56(1) of the Tax Procedures Act (TPA)—to three core questions:
- What is the correct tax point for CGT on share transfers under the ITA?
- What CGT rate applied to appellant’s transaction?
- Does Section 56 of the TPA (burden of proof on the taxpayer), when read with Section 95 (criminal offense for non-payment), violate Article 50(2)(a) of the Constitution on presumption of innocence?
The Court’s Analysis and Findings
1. The Tax Point for CGT on Share Transfers
Under Section 3(2)(f) of the ITA, CGT is chargeable on gains from property transfers, computed per the Eighth Schedule. Paragraph 6(1)(a) defines “transfer” as when property is “sold, exchanged, conveyed or otherwise disposed of.”
The High court rejected the Tribunal’s reliance on the Land Registration Act’s definition of transfer (which emphasizes registration) as inappropriate for tax law interpretation. Tax statutes must be read strictly, without inference, and Paragraph 6(1)(a) clearly points to the economic transfer—sale and payment—rather than administrative formalities like stamping.
In the appealant’s case, the shares were sold and paid for on December 30, 2022, making that the tax point. The stamping delay by the Lands Registry could not shift the liability or impose the new higher rate. The court noted that the Finance Act, 2023 (effective July 1, 2023), which ties the due date to the earlier of full payment or transfer application, did not apply to this 2022 transaction.
This ruling aligns with the principle that tax accrues when income is earned, even before receipt, preventing administrative delays from penalizing taxpayers.
2. Applicable CGT Rate
With the tax point fixed at December 30, 2022, the applicable rate was unquestionably 5%. The court held that applying the 15% rate (effective January 1, 2023) would constitute an after-the-fact taxation, violating principles of fairness and legitimate expectation.
The appellant had complied in good faith by self-assessing and paying under the prevailing law for the 2022 tax period. The KRA’s additional assessment under Section 31 of the TPA was invalid as it assigned income to the wrong year and applied post-transaction law changes. The judgment quashed the demand, reinforcing that taxpayers shouldn’t bear the burden of administrative delays.
3. Constitutionality of Section 56 TPA
The appelant argued that Section 56 TPA (placing the burden of proof on the taxpayer to show an assessment is wrong) infringes Article 50(2)(a)’s presumption of innocence, especially alongside Section 95 TPA (criminalizing non-payment).
The court dismissed this, clarifying that Article 50(2)(a) applies only to criminal proceedings (“every accused person has the right to a fair trial”). Tax disputes are civil in nature—whether at the KRA, TAT, or courts—and Section 56 merely codifies the Evidence Act’s principle: he who alleges must prove (Sections 107-109).
Even if a Section 95 offense arises, presumption of innocence would apply in that criminal context. Thus, no constitutional violation exists.
Implications for Taxpayers
This judgment is a win for predictability in Kenyan tax law:
- Timing of transactions: Year-end share transfers should prioritize documenting the sale and payment date. Delays in stamping or registration won’t alter the CGT tax point, protecting against rate hikes.
- Backdating: It reaffirms that tax laws aren’t applied backward, safeguarding legitimate expectations. Businesses restructuring around the period when rate change is effected can rely on the economic transfer date.
- Burden of proof: While taxpayers must still substantiate objections, it doesn’t equate to criminal guilt. As a taxpayer, maintain robust records to challenge assessments effectively.
- Broader CGT landscape: With CGT now at 15% (and potential future changes), this case highlights the need for pre-transaction planning.
For those facing similar KRA assessments, this precedent could support appeals.
How we could help;
If you have questions about CGT as pertains to share transfer or property transfer contact us for relevant advice.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Always seek professional guidance for your specific situation.
