REIT Tax Measures in the Finance Bill 2026 Are a Tax Deferral, Not a Tax Break for the Wealthy

Press Release

REIT Tax Measures in the Finance Bill 2026 Are a Tax Deferral, Not a Tax Break for the Wealthy

The REITs Association of Kenya rejects the characterisation of proposed REIT incentives as a "loophole for the rich" and explains why the measures grow the tax base rather than erode it.

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."

RAK 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.

A deferral, not a 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 into 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 roll-over treatment for contributions into 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% 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.

The Government collects more, further down the development chain

The IPF analysis treats a single tax head — CGT — in isolation and concludes that the Exchequer "loses money." This is a static view that ignores the economic activity a REIT sets in motion.

A one-off, deferred CGT charge on a contribution of property is modest when set against the recurring and downstream taxes that REIT-financed development generates across the value chain:

Stamp duty and CGT at eventual exit; Withholding tax on rental distributions to investors — recurring, year after year; VAT at 16% on construction materials, professional and management services; Corporation tax from contractors, developers, suppliers and consultants; PAYE from the construction and property-management jobs created; and Affordable Housing Levy contributions from the new employment generated.

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 VAT and PAYE is, in fact, relieved by the additional VAT and PAYE that REIT-driven development creates.

REITs democratise wealth — they do not concentrate it

The suggestion that REIT incentives benefit only Kenya's 6,800 dollar-millionaires turns the purpose of the asset class on its head.

The REIT framework was created precisely so that ordinary Kenyans — who cannot buy a whole commercial building — can own a fractional, liquid, professionally managed stake in institutional-grade real estate, with subscriptions starting in the tens of thousands of shillings on the Nairobi Securities Exchange. The largest investors in REITs are pension schemes, which hold the retirement savings of teachers, civil servants, nurses and ordinary salaried workers. These savers are the true beneficiaries of a deep, liquid REIT market.

A wealthy individual able to acquire entire properties outright has the least need for a REIT. It is the small saver who gains most. Taxing REITs punitively would not hurt the rich — it would close off one of the few avenues through which Kenyans of modest means can participate in real-estate wealth creation, and it would undermine D-REITs as a financing pillar for the Government's own Affordable Housing Agenda.

A nascent market that should be nurtured

Kenya's REIT market remains small and underdeveloped relative to peer markets such as South Africa. 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.

RAK welcomes engagement

RAK shares the goal of a fair and progressive tax system and of protecting low-income Kenyans from regressive measures. We simply submit that the REIT provisions are not the culprit — and that, on the evidence, they expand the tax base while widening access to wealth.

The Association stands ready to engage constructively with the Institute of Public Finance, the Kenya Human Rights Commission, the National Treasury and the Departmental Committee on Finance and National Planning, and to share data and modelling demonstrating the full-cycle fiscal contribution of the REIT sector.

"There is no quarrel between us and the goal of progressive taxation — we support it. But a deferral is not a giveaway, and a conduit is not a shelter. The REIT measures in the Finance Bill 2026 do not let the wealthy escape tax; they let ordinary savers in, and they cause the Treasury to collect more tax, not less, all the way down the development chain." — [Name], Chairman, REITs Association of Kenya

About the REITs Association of Kenya

The REITs Association of Kenya (RAK) is the industry body representing REIT promoters, managers, trustees, professional advisers and investors in Kenya's real estate investment trust sector. RAK works to deepen Kenya's capital markets, broaden access to real-estate investment, and support the financing of housing and commercial development for the benefit of all Kenyans.

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