The Court of Appeal in Nairobi Civil Appeal No. 65 of 2019 Kenya Revenue Authority vs David Mwangi Ndegwa has observed that the supply of commercial premises is not exempt from Value Added Tax.


The decision, delivered by a three-judge bench on 21st March, 2025 gave a separate interpretation of Section 5 of the Value Added Tax as read with paragraph 8 Part II, thereby departing from the High Court’s decision which had previously demanded that VAT was not applicable in transactions involving the purchase and sale of land and residential premises.


Section 5 of the Value Added Tax, Cap 476 Laws of Kenya provides for the charging of Value Added Tax; while the First Schedule to the Act provides for the supply of goods and services that are exempt from VAT.


Paragraph 8 of Part 2 to the First Schedule provides that the supply of the following services shall be exempt supplies:


supply by way of sale, renting, leasing, hiring, letting of land or residential premises.


“residential premises “means land or a building occupied or capable of being occupied as a residence, but not including hotel or holiday accommodation.

Provided that this paragraph shall not apply where such services are supplied in respect of-


a.   car park services; or


b.   conference or exhibition services, except where such services are provided for educational institutions as part of learning.


The Court of Appeal noted that the High Court had relied on Article 260 of the Constitution to define land but subsequently failed to appreciate that the said definition is neither precise nor immutable and was not intended for all and sundry situations and contexts. 

The court further stated that the VAT Act is an exemption statute, thus what is not exempted by the Act from levy of VAT is vatable. Consequently, the Court took the view that the exclusion in Paragraph 8 of Part II of the First Schedule to the Act of supply of the class of premises known as “residential” from levy of VAT, without any mention of supply of the class of premises known as “commercial,” must mean that unlike residential premises, SUPPLY OF COMMERCIAL PREMISES ARE NOT EXEMPT FROM VAT.