The real estate developer and family office filed a tax appeal against the Commissioner of Legal Services and Board Coordination in Kenya. The case arises from a tax compliance check conducted by the respondent on April 6, 2023, which resulted in additional assessments for corporation tax (USD 43,000), VAT (USD 242,000), and capital gains tax (USD 14,300). The taxpayer lodged an objection, which was initially late, but was eventually accepted, and subsequently filed an appeal after the assessments were confirmed by the respondent on June 27, 2023.

The taxpayer contends that the KRA erroneously determined VAT liability on the transfer of vacant land, misinterpreted the timing of supply for VAT purposes, and incorrectly demanded corporate income tax on development and approval costs that should have been capitalized. The developer also argues that the KRA overstepped by addressing issues not initially raised in the assessment letter.

In their defense, taxpayer provides a detailed background of the property involved, which included a dilapidated building in downtown Nairobi. Due to its state, the Nairobi City County Government had mandated rehabilitation or demolition. Following an incident that further damaged the building, the appellant decided to demolish it and subsequently received an unsolicited purchase offer. The agreement for sale, executed on July 9, 2020, specified that the property would be sold as vacant land after the building was demolished.

The real estate developer argues that the sale should be exempt from VAT under the provisions of the Value Added Tax Act, which exempts sales of vacant land. They assert that the building was demolished prior to the transfer of the property, and hence, the transaction did not involve a commercial building. Additionally, the appellant maintains that the Kenya Revenue Authority’s interpretation of the timing of supply and the treatment of development and approval costs were incorrect and not in accordance with the law.

Appeal Allowed: The Tribunal allowed the appeal brought by the appellant’s, indicating that the appellant’s arguments were found to be meritorious.

Objection Decision Set Aside: The Tribunal set aside the Respondent’s objection decision dated 27th June 2023. 

Costs: Each party was ordered to bear its own costs.

For further discussion on this alert or any other tax concern, please contact us below.

Beatrice Njeri 
Tax Compliance & Accounting Partner

beatrice@tarraagility.com
partners@tarragility.com