In a significant legal development, the Court of Appeal has delivered a decisive ruling, affirming the Kenya Revenue Authority’s (KRA) right to levy Value Added Tax (VAT) on commercial properties. This pivotal victory for the KRA, in the case of Kenya Revenue Authority v Ndegwa, effectively resolves previous uncertainties surrounding this tax obligation.

A major decision by the Court of Appeal on March 21st, 2025, in Kenya Revenue Authority v Ndegwa, definitively established that VAT is indeed chargeable on the sale of commercial property. This judgment specifically overturns a prior High Court finding that VAT did not apply to land sales, whether residential or commercial. The Court of Appeal’s ruling now sets a clear precedent with substantial implications for anyone engaged in commercial land and building transactions.

Background to the Tax Dispute

Previously, confusion existed regarding the applicability of Value Added Tax (VAT) to the sale of land with buildings erected on it. The Respondent in this case, David Mwangi Ndegwa, had argued that VAT should not apply, even to commercial properties. This argument was based on an earlier High Court ruling which suggested that VAT exemptions for land extended to the buildings upon it. Mr. Ndegwa had even paid KES 11.2 million in VAT under protest and subsequently won a refund in the High Court.

The Court of Appeal’s Definitive Ruling

The Court of Appeal overturned that High Court decision. In its reasoning, the Court cited that the VAT Act, 2013, clearly distinguishes between “land” and “buildings,” and further, between “residential” and “commercial” properties.

The Court of Appeal’s ruling makes it unequivocally clear: VAT at the standard rate of 16% does apply to the sale of commercial premises. The previous exemption applicable to land does not extend to commercial buildings.

Key Implications for Stakeholders

With this newfound clarity, all parties involved in the purchase and sale of commercial property must be acutely aware of their compliance obligations. These changes will require stakeholders to:

• Factor in VAT as an additional transaction cost when buying or selling commercial property in Kenya.
• Seek professional tax advice promptly to ensure compliance and avoid potential penalties from the KRA.
• Integrate VAT considerations into the pricing and financial structuring of all commercial property transactions

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