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Modalities of the Payment of Stamp Duty in the Forced Sale of Land (Foreclosure) upon Loan Default by Land Owner

Review of the Court of Appeal Decision in Kenya Revenue Authority v Kenya Banker’s Association (2020)

In October 2016, the Kenya Revenue Authority (KRA) issued a notice discontinuing the manual payment of both stamp duty and capital gains tax and required the payment of these taxes on the KRA website to be made contemporaneously. KRA therefore mandated payment of  Capital Gains Tax before a transferee could make payment of stamp duty that would be accepted.


The Kenya Bankers Association representing commercial banks and microfinance institutions instituted a judicial review action seeking a declaration  that the KRA notice that mandated the contemporaneous payment of stamp duty and capital gains tax was unfair, unreasonable and erroneous. The action was predicated on the grounds that this was conflating two separate taxes and burdening banks as Chargees and thus impeding their right to exercise the statutory power of sale upon default of a loan secured by land/house.


The argument of the banks was that capital gains tax was payable by the land/homeowner if they make a profit and was strictly a tax obligation on the land/homeowner (Chargor); and therefore, the new KRA notice was unreasonably placing a capital gains tax payment obligation on the banks or the purchaser if the land/homeowner was unable to pay capital gains tax. Thus, this uniting of the time to pay stamp duty and capital gains tax would stall any transfer to the new purchaser as the purchaser or the bank would be stopped from paying stamp duty until capital gains tax was paid under this statutory sale.


On the other hand, KRA argued against this action for judicial review stating that the bank as Chargee in a forced sale becomes the proprietor of the land/house when selling the land/house. Therefore, the charge secured the value of the land/house as security; and the moment the Chargee’s right to sell is exercised, the Chargor’s right over the land/house is extinguished; and the Chargee as seller is therefore accountable for capital gains tax and if granted, the prayers sought by the Kenya Banker’s Association would lead to loss of tax revenue to the Government should sellers not pay capital gains tax at the same time.


The court held that:

1.       The Chargee as seller, is proprietor – only of the charge and not the land/house.

2.       Capital gains tax is only payable on profit made on the transfer of the land/house and therefore to mandate in all cases the payment of stamp duty after capital gains tax is paid without knowing whether the Chargor has made a profit or loss (and which knowledge was only reasonably held by the Chargor himself), was unreasonably burdensome on a Chargee conducting a forced sale to recover a loan.

3.       The application was allowed by the court such that payment of stamp duty was de-linked from payment of capital gains tax thus enabling seamless exercise of the statutory power of sale



The High Court Ruling declaring the notice by KRA as irregular was upheld by the Court of Appeal in the year 2020 which held that the liability to pay capital gains tax arose on a gain/profit on a transfer and the notice from KRA was irregular and an unfair exercise of administrative power by KRA unduly burdening a Chargee with the tax burden of the Chargor.

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