MaichBlack wrote:The optimist wrote:theking wrote:mkonomtupu wrote:theking wrote:i totally disagree with the theory that people are selling stocks pre-CGT and buy them back post-CGT. doesn't make economic sense.
say u bought 10,000 shares of stock X at 50/=, current price is 100/=. if you sell that stock pre-CGT, cost incurred (brokerage fee) is say 2% of the revenue which is 10,000*100*0.02=10,000/=. If you decide to buy back the same shares post=CGT, you'll incur another 2% cost of brokerage of 10,000/=. total cost 20,000/=.
the other scenario is holding onto the shares and selling them post-CGT. costs incurred in this case will be the 10,000/= brokerage fee,plus 5% CGT. profit will be (10,000*100/=)minus(10,000*50/=)=50,000/= less brokerage fee of 10,000/=,net profit of 40,000/=.CGT will be 0.05*40,000=2,000/=. total cost incurred 12,000/= compared to 20,000/= above. also please note that i have not deducted the brokerage fee for buying the shares which should further reduce the taxable profit
#my2cents
The theory is that if you bought your shares in the 1990's when they were dirt cheap CGT uses the year of purchase as the base year to calculate the 5% capital gains. It is much easier to sell and buy back to make 2014 your base year for CGT
it'll still be more expensive to sell and buy back even if the shares were free. do the math
I think MkonoMtupu's theory makes sense. If I bought shares back in the 90s at those rock bottom prices, I'd simply sell and buy back pre-CGT.
Is the CGT being back dated? I doubt! How do you tax gains that were made before the tax was operational. That would not make sense and would be grounds for numerous court cases. But this is Kenya. anything is possible and people in certain offices are bloody lazy!!!
Have they decided on the base year in any case? Last I heard, brokers were saying they didn't have records on when shares were bought and at how much!
There was a KASIB seminar I attended...read this...
1. Commissions and other incidental costs (including credit contexts) must first be deducted from the gains before being subjected to CGT.
2. The issue of compensating tax was also dealt with although not quite comprehensively. However, compensating tax must be regarded separately as a tax specifically designed to deal with tax avoidance. Essentially, when gains are made from the sale of a capital asset, those gains naturally are subjected to CGT. Additionally however, if an entity’s dividend policy supports the distribution of those gains as dividends, the said distribution will be subjected to compensating tax. Obviously, stiff objections to the afore-mentioned arrangement were made with members charging that the situation amounted to double taxation.
3. Disposals made in administering a deceased person’s estate are exempt from CGT.
4. CGT doesn’t apply to losses. Also, losses are to be set-off against future gains when computing CGT on the latter gains. KRA promised to provide further guidance on this issue as it is fairly ‘sensitive’.
5. Brokers will most certainly be the collection agents for CGT. Members raised the issue of the cost of collection as being potentially burdensome. However, members were clear that as far as foreign investors were concerned custodians would perhaps be the more suitable collection agents. KRA didn’t seem to have a firm answer on this but promised to provide a firm way forward.
6. An exchange of property necessitated by acquisition, amalgamation, separation, dissolution or similar restructuring involving one or two companies which if certified by the Treasury CS as having been done in the public interest, shall be exempted from CGT. The law however, fails to define ‘public interest’.
7. As far as the law on CGT is concerned, the date of acquisition is neither here nor there. Members however vociferously urged KRA to set a cut-off date. KRA promised to look into this issue further.
Finally, KASIB members were requested to put together an appropriate memorandum where all contentious and controversial issues should be included so as to enable the same to be properly resolved by KRA and the Treasury CS.
possunt quia posse videntur