This alert brings to your attention the recent High Court decision in the case of Pesapal Limited v Commissioner of Domestic Taxes (Income Tax Appeal E081 of 2023) [2025] KEHC 12284 (KLR) (Commercial and Tax) (27 August 2025).
In the decision, the High Court set aside a Tax Appeals Tribunal ruling that had subjected commissions earned by a licensed payment service provider to VAT. The Court held that the provider’s activities such as receiving, transferring, and processing payments on behalf of third parties or merchants, fall within the scope of VAT exempt financial services under paragraphs 1(b) and 1(m) of the First Schedule to the VAT Act.
In doing so, the Court affirmed that VAT exemption depends on the nature of the service, not the provider’s licensing status or the use of digital platforms and reinforced the principle that ambiguities in tax law must be resolved in favour of the taxpayer.
The background of the case; Kenya Revenue Authority’s arguments; the Appellants’ arguments; the High Court’s ruling and our opinion on the judgement have all been summarised below.
KPMG is happy to assist on any issues arising from this alert. If you have any questions, please do not hesitate to reach out to our tax team on taxandregulatory@kpmg.co.ke.
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