The REITs Association of Kenya (RAK) has noted recent submissions by the Institute of Public Finance (IPF) and commentary attributed to the Kenya Human Rights Commission (KHRC) to the National Assembly Departmental Committee on Finance and National Planning, to the effect that the exemption of Real Estate Investment Trusts (REITs) from capital gains tax (CGT) under the Finance Bill 2026 ‘favours wealthy individuals’ and ‘presents a tax loophole for the wealthy’.
The association respects the important watchdog role that the IPF, the KHRC, and other civil society institutions play in scrutinising fiscal policy and shares their commitment to a progressive tax system that protects low-income earners.
However, the association wishes to correct a fundamental mischaracterisation of how REITs are taxed.
The proposed measures do not waive tax owed to the Exchequer. They defer it-and, on a full-cycle basis, they cause the government to collect more tax, not less.
Deferral, not forgiveness
The Finance Bill 2026 proposes (through the new paragraph 76 of the First Schedule to the Income Tax Act) to exempt from CGT – and from stamp duty – the transfer of property into a registered REIT.
This is a roll-over mechanism, not a permanent waiver. When a property owner contributes a building or land to a REIT in exchange for REIT units, no cash changes hands. The owner has not ‘cashed out’; they have merely converted a direct, illiquid holding into units of equivalent value.
Taxing that paper conversion would impose a cash tax demand on a transaction that has generated no cash, a recognised distortion that discourages the very seeding of REITs, the policy is designed to encourage.
Crucially, the gain is not extinguished. The asset’s tax cost base rolls over, and the CGT crystallises later-when the REIT eventually disposes of the underlying property, or when the investor sells their units at a genuine point of cash realisation.
The Treasury collects the same gain; it simply collects it at the point where real money is realised, rather than on a dry, non-cash transfer.
This is precisely why rollover treatment for contributions to REITs is the international standard, adopted in the United States, the United Kingdom, Singapore, and our regional peer, South Africa.
The REIT is a conduit, not a shelter.
The existing income-tax exemption for REITs under Section 20(1) of the Income Tax Act is similarly misunderstood.
A REIT is a flow-through vehicle. It is exempt at the trust level on the strict condition that it distributes at least 80 percent of its distributable income to unitholders. The exemption exists solely to prevent the same rental income from being taxed twice – once in the trust and again in the investor’s hands.
The tax is, therefore, not avoided; it is collected at the investor level, through withholding tax on distributions, which operates as a final tax. Far from being a giveaway, the regime compels income out of the structure and into the hands of taxable investors. This is the universally accepted REIT bargain-not a Kenyan loophole.
Properly understood, the REIT incentive is revenue-positive. It exchanges a deferred slice of one tax for a broadened, recurring stream across many. The pressure the IPF fears will fall on value-added tax (VAT) and pay-as-you-earn (PAYE) is, in fact, relieved by the additional VAT and PAYE that REIT-driven development creates.
The nascent REITs market should be nurtured.
The Finance Bill 2026 measures are a long-overdue correction of the very tax frictions-double taxation and dry transfer charges-that have stunted the sector’s growth.
Removing them now would stillbirth a market that has only just begun to take root, and would push real-estate capital back into opaque, untaxed informal structures.