The Office of the Controller of Budget (OCoB) has warned that provisions in the Income Tax (Amendment) Bill, 2026, particularly those introducing capital gains tax (CGT) exemptions on internal corporate reorganisations, could weaken public revenue and disrupt budget implementation, while urging Parliament to strengthen safeguards against open-ended exemptions and anti-avoidance risks to protect both national and county revenue bases.
In its submission to the National Assembly Departmental Committee on Finance and National Planning on Friday, the OCoB cited concerns over proposed amendments to the Eighth Schedule of the Income Tax Act (Cap. 470), which seek to exempt CGT on transfers of property between companies and shareholders as part of internal reorganisations.
The Bill also provides that such exemptions may apply where assets are transferred back to companies by shareholders as part of restructuring arrangements, provided certain conditions are met, including proportional transfer and linkage to subsidiaries.
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The Controller of Budget cautioned that without strict safeguards, such provisions could erode the tax base.
“Any legislative measure that alters the revenue base directly affects the envelope within which the national budget is implemented,” CoB stated warning that unregulated exemptions risk undermining fiscal planning and distorting revenue projections used in budget execution and reporting.
The OCoB further raised concern over the Bill’s broad definition of “internal reorganisation,” which it said is limited to restructuring that does not involve third-party transfers.
According to the office of the Controller of Budget, this definition fails to adequately address related-party transactions, cross-border restructurings, and arrangements involving trusts or nominee structures, creating potential loopholes for tax avoidance.
Among its recommendations, the OCoB urged Parliament to introduce a mandatory three-year post-enactment review of the revenue impact of the CGT exemptions and require advance rulings from the Kenya Revenue Authority for high-value reorganisations exceeding Sh500 million.
It also proposed that transferred assets remain traceable and that ultimate beneficial ownership should not change within five years of restructuring.
The office also called for expansion of the definition of internal reorganisation to exclude related-party non-shareholder transactions, ensure tax residency of reorganised entities for at least three years, and align the provisions with existing transfer pricing rules.
While noting that it supports efforts to ease genuine corporate restructuring, the OCoB concluded that the Bill in its current form presents “significant concerns relating to public revenue safeguards, anti-avoidance risk, and definitional adequacy,” and urged legislators to adopt its recommendations before enactment.
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