Controller of Budget warns of revenue leakages in proposed tax exemptions bill

The concerns emerged during a stakeholder engagement convened by the Departmental Committee on Finance and National Planning, where stakeholders mainly supported the Bill but called for stronger safeguards.

The proposed law, sponsored by Molo MP Kuria Kimani, seeks to ease corporate restructuring by exempting certain internal property transfers from Capital Gains Tax (CGT). 

It aims to provide tax relief when assets are transferred between a company and its shareholders during internal reorganisations, provided there is no involvement of third parties.

While stakeholders described the proposal as progressive and aligned with global best practices, the Controller of Budget cautioned that the current provisions may not be stringent enough to deter abuse.

“Capital Gains Tax is a constitutionally sanctioned revenue stream appropriated through Finance Acts. A permanent CGT exemption for internal reorganisations, without a sunset clause or review mechanism, creates an open-ended revenue risk,” the office noted in its submission.

To address the risk, the Controller of Budget proposed that companies benefiting from the exemption be required to remain tax-resident in Kenya for at least three years after restructuring. 

This, it argued, would prevent firms from quickly selling reorganised assets to third parties after securing tax relief.

The office also recommended a mandatory review of the exemption’s revenue impact three years after enactment, alongside a requirement for large transactions exceeding Ksh.500 million in asset value to obtain advance approval from the Kenya Revenue Authority.

The session was chaired by Mandera County Woman Representative Umul Ker Kassim, who acknowledged the concerns and invited stakeholders to propose stricter measures to safeguard public funds.

“We are open to suggestions on stricter regulations we can put in place to ensure that the provisions of this Bill only serve the purpose for which they were intended,” she stated.

Other stakeholders echoed the need for tighter controls. Civil society groups warned that without adequate safeguards, the exemptions could undermine Kenya’s domestic resource mobilisation efforts, while professional services firms called for clearer definitions and alignment within the law to prevent loopholes.

Despite the concerns, many industry players maintained that the Bill could significantly improve Kenya’s investment climate by reducing tax burdens associated with corporate restructuring.

The Committee is now expected to compile its report on the Income Tax (Amendment) Bill, 2026, alongside the Sovereign Wealth Fund Bill, 2026 and the Public Finance Management (Amendment) Bill, 2025, ahead of debate in the National Assembly next week.