A new legislative proposal could significantly ease how companies restructure by shielding shareholders from certain taxes when assets move within the same corporate group.

Lawmakers say the changes are designed to remove long-standing ambiguities and eliminate tax burdens that arise even when no real economic gain is made.

A parliamentary committee has now endorsed the plan. In a report tabled, the National Assembly Committee on Finance and Planning backed the Bill and urged the House to approve the amendments, arguing they will streamline internal corporate reorganisations.

At the centre of the proposal is a change to the Income Tax Act that would exempt shareholders from paying Capital Gains Tax (CGT) on assets transferred to them by their own company, provided the transaction is part of an internal restructuring.

The same exemption would apply when shareholders transfer property back to the company in exchange for shares.

Currently, such transfers are often treated as taxable events. Even when assets are simply being reorganised within the same economic group, they can still attract CGT if they meet the legal definition of a disposal. This has made internal restructuring costly and, at times, unpredictable.

“The proposed amendment introduces a new exemption under item 6 of the Eighth Schedule to address this gap,” the report states.

The Bill, formally known as the Income Tax (Amendment) Bill (National Assembly Bill No. 20 of 2026) and sponsored by committee chair Kuria Kimani, seeks to remove that burden by carving out a specific exemption for intra-group transfers.

To qualify, however, companies will have to meet strict conditions. The property must be distributed in proportion to each shareholder’s existing stake, and where shares are involved, they must relate to a subsidiary of the company undertaking the reorganisation.

These safeguards are intended to ensure the exemption is not abused.

Tax reliefs?

Lawmakers also moved to resolve a key source of confusion: the lack of a legal definition for internal reorganisation. At present, the Income Tax Act does not clearly define the term, leaving room for interpretation.

“This lack of definition creates uncertainty in determining which transactions qualify for tax relief and may expose taxpayers to differing interpretations [by] tax authorities,” the report adds.

That ambiguity has, in some cases, led to disputes between taxpayers and authorities over whether a restructuring should be exempt or taxed as a disposal.

Under the proposed changes, internal reorganisation would be formally defined as any restructuring of ownership, control, or assets that does not involve transferring property to a third party. This effectively limits the tax relief to transactions within a corporate group, excluding deals involving outsiders.

Beyond CGT, the Bill also addresses another tax risk tied to restructuring: the possibility that asset transfers could be treated as dividends. Under current law, certain distributions from a company to its shareholders may be taxed as dividend income.

“In situations where a company undertakes restructuring involving the transfer of assets to shareholders, such transfers could potentially be reclassified as dividends, depending on their nature and structure.”

To close that loophole, the proposed amendment clarifies that qualifying transfers made under the new exemption will not be treated as distributions for income tax purposes. This ensures they are not taxed as dividends.

Overall, the proposed reforms aim to make corporate restructuring more predictable and less costly by aligning tax treatment with the economic reality of intra-group transactions, where ownership may shift on paper, but value remains within the same corporate structure.