Kenya: Commissions earned by payment service provider exempt from VAT (High Court decision)
Overturned a Tax Appeals Tribunal ruling
The High Court of Kenya on August 27, 2025, overturned a Tax Appeals Tribunal ruling that subjected commissions earned by a licensed payment service provider to value added tax (VAT). The court held that the provider's activities, such as receiving, transferring, and processing payments on behalf of third parties or merchants, fell within the scope of VAT-exempt financial services under the VAT Act.
The case is: Pesapal Limited v. Commissioner of Domestic Taxes (Income Tax Appeal E081 of 2023) [2025] KEHC 12284 (KLR) (Commercial and Tax) (27 August 2025)
The appeal arose from a tribunal decision in which the Kenya Revenue Authority assessed VAT and penalties on commissions earned by a payment services provider, arguing these were fees for operating a payment platform. The taxpayer contended that the commissions were for providing exempt financial services, leading to the High Court appeal.
The High Court affirmed that VAT exemption depends on the nature of the service, not the provider's licensing status or the use of digital platforms. The court emphasized that ambiguities in tax law must be resolved in favor of the taxpayer, reinforcing the principle that the VAT Act's exemption list is open-ended, accommodating evolving financial services, particularly those delivered through digital platforms.
Read a September 2025 report prepared by the KPMG member firm in Kenya