IMPLICATIONS OF THE CONSTITUTION OF KENYA OF 2010 ON ENVIRONMENTAL GOVERNANCE, RIGHTS AND OBLIGATIONS

Kenya promulgated its new constitution in the year 2010, and to many, this constitution set off a new dawn by resorting to manage and/or address the various historical injustices and issues that had risen since time immemorial. 

It also brought to it various amendments and improvements to the 1969 Constitution.  It simplified the text in order to enhance comprehension of its provisions. This is because it is the Supreme law of the Republic that binds all persons and all State organs at both levels of government, echoed in Article 2(1) of the Constitution. 

The Constitution covers a multitude of sectors and aspects of human existence in Kenya as well as our relations with the international community. 

This article is however limited to focus on provisions relating to the environment, which is an important concern in not only Kenya, but also the world at large. 

Environmental Rights 

The Constitution expressly provides in Chapter 4, Article 42 that: Every person has the right to a clean and healthy environment, which includes the right:- 

a) To have the environment protected for the benefit of present and future generations through legislative and other measures; 

b) To have obligations relating to the environment fulfilled. 

Article 42 gives us a glimpse but is not conclusive picture on what constitutes the environment. However, Chapter 5 provides ample information as to what the word “environment” constitutes. It has two categories: Land and Environment and Natural Resources.

Principles of Land Policy The Constitution also enshrines these principles, which are meant to govern the use of land (private, public and community land) in a manner that equitable, efficient, productive and sustainable. 

These principles are: (a) Equitable access to land; (b) Security of land rights; (c) Sustainable and productive management of land resources; (d) Transparent and cost effective administration of land; (e) Sound conservation and protection of ecologically sensitive areas; (f) Elimination of gender discrimination in law, customs and practices related to land and property in land; and (g) Encouragement of communities to settle land disputes through recognized local community initiatives consistent with the Constitution. 

MANAGEMENT OF LAND 

The overall body responsible with matters land is the National Land Commission (NLC).

Its functions are:

 (a) To manage public land on behalf of the national and county governments; 

 (b) To recommend a national land policy to the national government; 

 (c) To advise the national government on comprehensive landholding by non-citizens;

 (d) To conduct research related to land and the use of natural resources and make recommendations to appropriate authorities; 

 (e) To initiate investigations, on its own initiative or on a complaint, into present or historical land injustices and recommend appropriate redress; 

 (f) To encourage the application of traditional dispute resolution mechanisms in land conflicts; 

 (g) To assess tax on land and premiums on immovable property in any area designated by law; 

 (h) To monitor and have oversight responsibilities over land use planning throughout the country; and 

 (i) All other functions prescribed by national legislation. 

Role of the State 

The State has obligations on pertaining to environment and natural resources. 

In this regard, Article 69 provides that the State is to ensure:

(a) Sustainable exploitation, utilisation, management and conservation of the environment and natural resources, and ensure the equitable sharing of the accruing benefits; 

(b) Work to achieve and maintain a tree cover of at least ten per cent of the land area of Kenya; 

(c) Protect and enhance intellectual property in, and indigenous knowledge of, biodiversity and the genetic resources of the communities; 

(d) Encourage public participation in the management, protection and conservation of the environment; 

(e) Protect genetic resources and biological diversity;

(f) Establish systems of environmental impact assessment, environmental audit and monitoring of the environment; 

(g) Eliminate processes and activities that are likely to endanger the environment; and 

(h) Utilise the environment and natural resources for the benefit of the people of Kenya. 

REDRESS FOR VIOLATIONS OF ENVIRONMENTAL RIGHTS 

Every person has the duty to not only cooperate with State organs in the protection and conservation of the environment, but also to ensure ecologically sustainable development and use of natural resources. As such, if it is alleged that the right protected under Article 42 above mentioned has been, or is likely to be, denied, violated, infringed or threatened, the person may apply to a court for redress in addition to any other legal remedies available in respect to the same matter. The Constitution thus gives locus standi to every person who has reason to believe that right protected under Article 42 has been, or is likely to be, denied, violated, infringed or threatened. 

Once an application has been made, the Court may either make any order or give any directions, it considers appropriate:

(a) To prevent, stop or discontinue any act or omission that is harmful to the environment; 

(b) To compel any public officer to take measures to prevent or discontinue any act or omission that is harmful to the environment; or

(c) To provide compensation for any victim of a violation of the right to a clean and healthy environment. 

AGREEMENTS RELATING TO NATURAL RESOURCES 

It is important to note that any agreements relating to natural resources is subject to ratification by Parliament if: 

(a) It involves the grant of a right or concession by or on behalf of any person, including the national government, to another person for the exploitation of any natural resource of Kenya; and 

(b) It is entered into on or after the effective date. These agreements will be governed by legislation enacted by Parliament, which is to provide for the classes of transactions subject to ratification as above mentioned and enact legislation to give full effect to the provisions relating to environment and natural resources, pursuant to Article 71 (2) and 72 of the Constitution. We trust the above brief shed some light on IMPLICATIONS of the Constitution of Kenya of 2010 on environmental governance, rights and obligations. Nonetheless, should you require any clarification on the matters canvassed herein-above, please contact us. 

For: STRATEGIC LEGAL SOLUTIONS GROUP 

Teddy Okello, & Centre for Environmental Law – a participating legal consultancy firm in the SLS Group of Consultancies. 

info@stralexgroup.com

CAPITAL GAINS TAX AND HOW IT AFFECT LAND TRANSFER TRANSACTIONS IN KENYA

The Finance Act CAP 16 of 2014 was assented by the president on September 2014; section 23 of the said Act has amended the Eighth Schedule of the Income Tax Act CAP 470 to require that the sale of property be subjected to Capital gains tax. The tax which was suspended in 1985 has now been re-introduced and was effective from 1st January 2015; the tax is 5% of the net gain from the transfer of property (Section 3(2)f of the Income Tax Act). Capital Gains Tax is a tax chargeable on the whole of a gain which accrues to a company or an individual on or after 1st January, 2015 on the transfer of property situated in Kenya, whether or not the property was acquired before 1st January, 2015 . The net gain is calculated as the excess of the transfer value over the adjusted cost of the property that is being transferred. The Transfer Value provided for in section 7(1) of the Income Tax Act is the amount or value of consideration or compensation for transfer of the property less incidental costs on such transfer. The Adjusted Cost as stated in the Income Tax act section 8(1) is the sum of the cost of acquisition or construction of the property; expenditure for enhancement of value and/or preservation of the property; cost of defending title or right over property, if any; and the incidental costs of acquiring the property . The adjusted cost shall be reduced by any amounts that have been previously allowed as deductions under Section 15(2) of the Income Tax Act. That is: Capital gains Tax= (Transfer Value – Adjusted Cost) x 5% The tax is paid by the person who transfers the property, the transferor. It can be a legal person or corporate body. A transfer takes place where a property is sold, exchanged, conveyed or disposed of in any manner (including by way of gift) or on the occasion of loss, destruction or extinction of property whether or not compensation is received or on the abandonment, surrender, cancellation or forfeiture of, or the expiration of rights to property . It is considered a final tax and cannot be offset against other income taxes. Where the transfer value cannot be ascertained, the market value is used. Incidental costs are deductible in determining the transfer value of property. These costs include: a) stamp duty; b) legal fees; c) advertising cost; and d) any costs of the acquisition or transfer of property which consist of expenditure wholly and exclusively incurred by the person acquiring the property or the transferor for the purposes of the transfer. Transfers of property as provided by the Eighth Schedule paragraph 6(2) of the Income Tax Act are not considered transfers for the purpose of CGT. These includes: a) transfer through inheritance; b) transfer of property as security for a debt; c) issuance by a company of its own shares or debentures; d) transfer of an asset between spouses or former spouses, as part of a divorce settlement or bona fide separation agreement . Effects if Reintroduction of the Capital Gains Tax 1. The reintroduction of the Capital Gains Tax will increase the cost of land transactions because most investors and land owners and developers will try to pass on the costs to buyers. The process of paying this additional tax will add up to the already strenuous work of transfer of land transaction. 2. The Finance Act does not specifically provide guidelines on how the CGT relating to the transfer of property shall be paid. It is expected that the CGT will be payable in the same manner as the stamp duty such that, evidence of payment of CGT may be required for the transfer of property to be registered . Although KRA has not outlined the procedure that will be applied the Capital gains it says that plans are underway to ease the process of payment of CGT by developing a module within the iTax system that will allow taxpayers to make electronic declarations. 3. Raising tax rates on high income individuals dissuades them from doing productive things – that is to say, it causes them to cut back on working and investing . 4. It may lower Kenya’s appeal as an investment destination but this is debatable since Kenya’s CGT rate is among the lowest in Africa compared to some countries like Tanzania which charges 20% Capital Gain Tax and Uganda which charges 30%. 5. Concerns have been raised that the new tax is likely to push up the cost of housing, and that it could be difficult to administer. “The net effect will be an increase in property prices as sellers look to pass on the tax to buyers. This may result in an adjustment in the sector, particularly for individuals or small developers,” said Timothy Kamau, the head of investor relations at Home Afrika, a NSE-listed real estate company . Recent debates have suggested that the Capital Gains Tax may encourage people to hold property for longer periods and to promote better capital allocation. However inventory is not taxed: after buying land or property for your business premises and selling it after one year, it will not be taxed . This is because inventory is not considered a capital asset. Those whose land is compulsorily acquired by the State will be exempt from the tax . Taxpayers will also have to review transactions involving the transfer of property where the transaction is expected to take place on or after 1 January 2015 . The effect it will have on the real estate sector will get clear when the modalities of how the tax will be administered are released and even clearer when the same is implemented. But generally speaking, this is one additional hurdle and complication in home ownership and everyone will be affected directly or indirectly. And since the government will now get more from the industry, the cost of the industry is more likely to increase than decrease, for the simple reason that someone has to bear the additional cost. Taxing the income from capital income has the potential to reduce savings and investment incentives as well as being a disincentive to entrepreneurship. This dampens the nation's entrepreneur spirit as well as long term prospects for increased productivity and economic growth . Banks and other financial institution may exercise more caution before taking land as security for loans because of the uncertainty and controversy surrounding the reintroduction of the capital gains tax. The Income Tax of 2010 section 72D states that where any amount of tax remains unpaid after the due date a penalty of twenty percent shall immediately become due and payable. On the other hand the Kenya Revenue Authority provides that non payment where no deduction is made could attract a penalty of up to 200% or a fine or imprisonment but where a declaration is made the penalties are 20% and 2% interest per month until the amount is paid in full. In conclusion the Capital Gain Tax is only 5% at the moment and has not been fully implemented. It is therefore difficult to measure the effect it will have on land transfer transactions in the country. However, it is clear that if this percentage is raised the government risk losing income whether as stamp duty or registration costs associated with property transactions because it has real prospects of making Kenya unattractive to investors. For further clarification on tax issues, please contact us. Christine GITONGA For: Taxlex Consulting Group – a participating consultancy firm in the SLS Group of consultancies