Kenya: VAT is payable on commercial property sales (Court of Appeal decision)

The Court of Appeal of Kenya on March 21, 2025, overturned a previous High Court decision, and established that value added tax (VAT) is applicable to the sale of commercial property.

The case is: Kenya Revenue Authority v. David Mwangi Ndegwa (Civil Appeal No. 65 of 2019)

Background

In 2013, the taxpayer purchased a property in Kiambu from a bank for approximately KES 70 million. The Kenya Revenue Authority (KRA) demanded a 16% VAT on the transaction, amounting to around KES 11 million. The taxpayer objected, arguing the transaction was not subject to VAT, but paid under protest to complete the transfer. The taxpayer later sought a refund from KRA, which was denied, prompting the taxpayer to seek a High Court determination. The High Court held in the taxpayer’s favor in 2018, but KRA appealed the decision.

Court of Appeal decision

The Court of Appeal addressed key issues, including whether the definition of land includes buildings, the clarity of the VAT law regarding commercial properties, and the validity of the refund claim. The court emphasized the distinction between land and buildings under the VAT law and decided that commercial buildings are taxable. It found no ambiguity in the VAT law, which exempts residential premises and land but not commercial premises. Consequently, the court held that KRA lawfully applied VAT on the sale of commercial property, overturning the High Court's decision.

KPMG observation

This decision clarifies VAT applicability to commercial property sales, underscoring the need for real estate developers to incorporate VAT into pricing and confirm compliance.

Read an April 2025 report prepared by the KPMG member firm in Kenya