The government is prospecting to introduce capital gains tax. Finance minister Njeru Githae told Daily Nation that the ministry is carrying out a study to figure out best ways to administer the tax, while the government seeks to increase its revenue to hit its revenue targets. [Read: The trillion Shilling Taxman]
Capital gains tax is a a tax levied on profit realised after the sale of a non-inventory asset that was bought at a lower price. The most common capital gains are realised from sale of stocks, bonds, minerals and property. Capital gains taxes are only triggered when an asset is realized, not while it is held by an investor. An investor can own shares that appreciate every year, but the investor does not incur a capital gains tax on the shares until they are sold.
It is important to note that it is net capital gains that are subject to tax because if an investor sells two stocks during the year, one for a profit and an equal one for a loss, the amount of the capital loss incurred on the losing investment will counteract the capital gains from the winning investment.
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