Capital Gains Tax, KRA Erred in Calculating on Gross Sale

Case Study: Corona v Commissioner of Investigation & Enforcement (Tax Appeal E003 of 2025) [2025] KETAT 285 (KLR) (16 October 2025) (Judgment)

Background Facts

• Giuseppe Corona sold a property in Malindi for Kshs. 8,631,000 in March 2023.
• The Kenya Revenue Authority (KRA) found no record of Capital Gains Tax (CGT) payment for this sale.
• The KRA issued a tax demand for Kshs. 1,618,313. This was calculated by applying the 15% CGT rate directly to the full sale price (Kshs. 8.631 million).
• Mr. Corona objected, arguing the KRA ignored his acquisition costs and other allowable expenses. Despite being asked, he failed to provide any documents (sale agreements, invoices, etc.) to prove these costs.
• The KRA rejected his objection due to the lack of supporting evidence, confirming the tax demand.

The Core Legal Dispute

The Tribunal focused on two main issues:

1. Was the KRA’s method of calculating Capital Gains Tax lawful?
2. Did Mr. Corona prove that the assessment was wrong?

The Tribunal’s Key Findings

The Tribunal ruled that both parties were at fault.

A. The KRA’s Error: Misapplication of the Law

• CGT is a Tax on NET Gain, Not Gross Sale Price: The Tribunal firmly stated that the law requires CGT to be calculated on the profit from the sale, not the total amount received
• Failure of “Best Judgement”: While the KRA can make an estimate when a taxpayer fails to provide records, it must use “best judgement.” Simply taxing the entire sale price was deemed punitive, unreasonable, and unlawful. The KRA should have made a reasonable effort to estimate a realistic net gain.

B. The Appellant’s Failure: Not Meeting the Burden of Proof

• The law places the burden of proof on the taxpayer to show an assessment is incorrect.
• By failing to provide any documents to support his claims for costs, Mr. Corona did not discharge this legal burden. His objections were merely unproven assertions.

Final Orders

The Tribunal did not simply cancel the tax. Instead, it referred the matter back to the KRA. The matter was sent back to the KRA to make a new, lawful assessment that properly calculates the Capital Gains Tax on the net gain, using its best judgement.