Wasike wants to purchase some property from his old cousin, Onyango. Their mothers are sisters, he says and that since Onyango is undergoing some financial constraints, it is important that if he is going to sell to relieve his constraints, then his property must stay within the family.
However, purchase of property comes in with other expenses: legal fees, stamp duty, and such other fees.
Wasike’s biggest issue is that he does not want to pay stamp duty because he is really buying from his cousin, who is family. Yes, they are not close, but they are “really family”, Wasike constantly says. In his opinion, it is unfair for the government to tax transactions between family members.
Taxes and death, Benjamin Franklin said, are the only certain things in this world. This shows you how difficult it is to evade a tax, or even to be exempted from paying a particular tax. It must indeed be under very special circumstances.
What is tax?
Tax is compulsory contribution to state revenue. Tax is levied/imposed by the government, and payment of tax is a civic duty.
What are the types of taxes?
There are two types of taxes: direct and indirect taxes. Direct taxes are those that a tax payer pays directly to the government, such as stamp duty. Indirect taxes are taxes which the tax payer remits to the government indirectly, such as value added tax.
All about stamp duty
Stamp duty is a tax levied on executed instruments. In simple terms, it is tax levied on documents. Stamp duty is usually paid in the country where one seeks to enforce the said document.
The law regarding stamp duty in Kenya is detailed in the Stamp Duty Act Cap 80, Laws of Kenya.
The documents for which stamp duty should be paid, the amount which should be paid, and who should pay the named amount, are mentioned under the schedule to the Act. For example, under the schedule, it is stated that stamp duty of 250 shillings on a bill of exchange payable on demand or at sight or on presentation or within three days after date or sight shall be paid by all persons executing the bill. Also, among many examples, stamp duty of 200 shillings on a document appointing a new trustee must be paid by the appointer.
The rate of stamp duty payable on the transfer of land is either 4% or 2% of the value of the property for properties in town/city/municipality or out of town/city/municipality, respectively. The government relies on the full disclosure of the parties to the transfer to disclose the value of the property, but the same is assessed and determined by the government valuer, before a definite amount of how much stamp duty to be paid is ascertained.
For example, when I purchase a house from Agrace, we shall both execute a transfer form and declare that I have paid and Agrace has received 100 million shillings for the house. To pay stamp duty, the amount is prescribed by the government valuer through a valuation process. He values the property subject to the current market value of the property in the area where it is located. If the market value of the property is 120 million, and the property is located in Upper Hill, Nairobi, stamp duty will be 4% of 120 million, which is 4,800,000shillings. The stamp duty would be lesser if the property is valued at 120 million and is located in Butere, Mumias (an out of town location). Stamp duty payable would be 2,400,000 shillings.
Exemption from stamp duty
There are instances where stamp duty may not be paid. This is however subject to the law, and to confirmation by the collector of stamp duty. Those instances are:
- Transfers between associated companies
any instrument for which it is shown to the satisfaction of the collector that the effect thereof is to convey or transfer a beneficial interest in property from one company with limited liability (the transferor) to another such company (the transferee); and that either one of such companies is a beneficial owner of not less than ninety per centum of the issued share capital of the other company; or not less than ninety per centum of the issued share capital of each of the companies is in the beneficial ownership of a third company with limited liability; and that the instrument was not executed in pursuance of or in connection with an arrangement where under the consideration for the conveyance or transfer was to be provided directly or indirectly by a person other than a company which at the time of the execution of the instrument was associated with either the transferor or the transferee; or the beneficial interest in the property was previously conveyed or transferred directly or indirectly by such a person.
- Transfers relating to real estate investment trust
This exemption only applies real estate investments trusts authorized under the Capital Markets Act (Cap 485 A. It must be shown to the collector that:
- the effect thereof is to convey or transfer a beneficial interest in property from one trustee to another trustee or to an additional trustee;
- The effect thereof is to convey or transfer a beneficial interest in property from a person or persons for the transfer of units in the real estate investment trust.
- Exemption of building societies’ documents
No rules of a building society registered under the Building Societies Act (Cap. 489) nor any copy thereof nor any receipt, nor any entry in any book of receipt for money deposited in the funds of a building society, or for any money received by any member, or his executors, administrators, assigns or attorneys, from the funds of a building society, nor any transfer of any share, nor any bond or other security to be given to or on account of a building society, or by any officer thereof, nor any order on any officer for payment of money to any member, nor any appointment of any agent, nor any certificate or other instrument for the revocation of any such appointment, nor any other instrument or document whatever required or authorized to be given, issued, signed, made or produced in pursuance of the Building Societies Act (Cap. 489), or of the rules of a building society, shall be subject or liable to or charged with any stamp duty or duties whatsoever: Provided that this exemption shall not extend to a mortgage, nor to the release or discharge of a mortgage.
- A conveyance or transfer, or an agreement for a conveyance or transfer, operating as a voluntary disposition of property shall not be chargeable with any duty, if the conveyance or transfer is in favour of any body of persons incorporated by special Act and that body is by its Act precluded from dividing any profit amongst its members and the property conveyed is to be held for the purposes of an open space or for the purposes of its preservation for the benefit of Kenya; or anybody of persons established for charitable purposes only or the trustees of a trust so established
- Legal Notice Number 92 of 2007 issued pursuant to section 106 of the Stamp Duty Act. The Legal Notice provides that:
“IN EXERCISE of the powers conferred by section 106 of the Stamp Duty Act, the Minister for Finance directs that any instrument that is in respect of the transfer of a family property to a limited liability company whose shares are wholly owned by the family be exempt from the provisions of the Act.”
- Transfer between spouses
Other transactions exempted from stamp duty are:
- an instrument executed by or on behalf of or in favour of the Government in any case in which, but for this exemption, the Government would be liable to pay the duty;
- a bill of exchange, cheque or promissory note drawn or made in Uganda or in Tanzania and accepted and paid or presented for acceptance or payment, or endorsed, transferred or otherwise negotiated, in Kenya, if the bill of exchange, cheque or promissory note has previously been duly stamped in Uganda or Tanzania;
- a power, warrant or letter of attorney granted or to be granted by the Managing Director of the Kenya Posts and Telecommunications Corporation, and a power, warrant or letter of attorney given by any depositor in the post office savings bank established under the provisions of the Kenya Post Office Savings Bank Act (Cap. 493B) to any other person, authorizing him to make a deposit of a sum of money in the savings bank on behalf of the depositor or to sign any document or instrument required by the rules of the savings bank to be signed on making the deposit or to receive back any sum of money deposited in the savings bank, or the interest arising therefrom; a receipt or an entry in a book of receipts for money deposited in the savings bank, or for any money received by a depositor or his executors or administrators, assigns, attorneys or agents, from the funds thereof; and a draft or order, or an appointment of an agent, or any certificate or other instrument or document whatsoever, required or authorized to be given, issued, signed, made or produced in pursuance of that Act or of any rules made thereunder;
- a transfer of shares in the stock or funds of the Government, the Organization, the Authority, the Government of Uganda or the Government of Tanzania;
- a conveyance or transfer of any stock or marketable security in any company incorporated in Uganda or Tanzania, if the conveyance or transfer has been duly stamped in accordance with the law of the territory in which the company was incorporated;
- an instrument for the sale, transfer or other disposition, either absolutely or by way of mortgage or otherwise, of a ship or of any part, interest, share or property of or in a ship;
- a bond given by a public officer for the due execution of his duties;
- a will, codicil or other testamentary disposition; and
- Instruments for the sale or transfer of land for the construction or expansion of educational institutions: Provided that stamp duty shall become payable if such land reverts to any other use.
- all instruments with respect to licences of business activities of an export processing zone enterprise licenced under the Export Processing Zones Act (Cap. 517);
- The sale conveyance, transfer or issue of shares, preferred shares, stocks, warrants or similar capital market instruments which are listed and transacted on the Nairobi Stock Exchange or other securities exchange approved under the Capital Markets Authority Act (Cap. 485A). (2) The exemption conferred by this section on the Government extends to the Community and to the Corporations within the Community.
Other General exemptions
- Acknowledgement of Debt
- Adoption Deed.
- Affidavit or Statutory Declaration.
- Agreement relating to the sale of a Government security or share in an incorporated company or other body corporate.
- Apprenticeship Deed.
- Authority to adopt.
- Bill of Lading.
- Certificate of shares or share certificate.
- Charter Party. (12) Delivery Order.
- Instrument of Divorce. (14) Letter of Allotment of shares.
- Letter of License, that is to say, an agreement between a debtor and his creditors that the creditors shall for a specified period suspend their claims and allow the debtor to carry on business at his own discretion.
- Notarial Act.
- Note of Protest by Master of ship.
- Protest by ship Master.
- Shipping Order.
How to apply for an exemption from stamp duty
Though an exemption is provided for by law, it is not automatic. The would-be payer of stamp duty must apply for it. The application for exemption is accompanied by supporting documents such as:
- A certificate of incorporation or identity card of the transferee
- If transferee is a company, a current cr12
- An affidavit by the transferor that the transferee is owned by a family or members of the same family. The affidavit must make reference to verifiable copies of documents which show the degree of consanguinity of the transferor and the transferee such as birth certificates and marriage certificate. The affidavit must also state the law relied upon to make the application.
- Transferee’s PIN certificate
- A duly executed transfer form
- Copy of the title to the property
Upon satisfaction of the minister, an exemption certificate is granted. An exemption certificate, upon presentment at the relevant land registry will be exempted from payment of stamp duty.
So, before you transfer that property, seek advice from us on how to go about it. You never know, you may be exempted from one of the certainties of this life, tax. So, does Wasike qualify for an exemption from stamp duty?
BY SAMALI BITALA.
This article appears in our digital law newsletter, The Deuteronomy Vol 7, Issue 1 of July 7th, 2017
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