The High Court’s Commercial and Admiralty Division issued a judgment on 29th November, 2018 declaring that Value Added Tax (VAT) is not payable on transactions for the sale or purchase of land regardless of whether or not the buildings on the property are residential or commercial.

The dispute leading to the case arose when the Plaintiff purchased a parcel of land with buildings erected on it from a local bank in Kenya and was compelled to pay 11,200,008.00 (which was 16% of the purchase price) as VAT to the Defendant-Kenya Revenue Authority (KRA).

He argued that the First Schedule of the VAT Act, 2013 exempted supplies by way of sale of “land or residential premises” from payment of VAT.

KRA the other hand, argued that the VAT exemption only applies to sale of land or residential premises and that the section clearly differentiates between residential and commercial properties meaning that VAT should be charged on sale or purchase of commercial buildings.

The Court agreed with the Plaintiff’s argument that the de nition of land in the Constitution applies to what is on the surface of the earth and the airspace above it and therefore the exemption in the VAT Act applies to all land, both with commercial and residential properties. The Defendant, KRA was also directed to refund the sums that the Plaintiff had paid as VAT.

This judgement means that moving forward, KRA can no longer charge VAT on the sale or purchase of commercial properties. The learned Judge also urged KRA to clarify from the legislature on which supplies were exempt from VAT in order to remove the ambiguity which had led to this suit.

KRA was granted a stay of execution by the High Court and is proceeding to the Court of Appeal.

We shall follow up on further progress of the case and provide further updates in due course.

The judgment can be found here