VAT on Land and Commercial Buildings and Excise Duty on “other fees”

This Alert brings to your attention the High Court’s judgment in the case of the National Bank of Kenya Limited (NBK) vs Kenya Revenue Authority (KRA) (Income Tax Appeal Nos E155 & 533 of 2020).

KRA initially demanded KES 573,384,525 relating to Capital Gains Tax (CGT), Value Added Tax (VAT) and Excise Duty from NBK. It later revised the demand and issued a notice of additional assessment for KES 430,356,551.

NBK raised an objection against the additional assessment and subsequently KRA issued its objection decision. In the decision, KRA confirmed the VAT assessment on land and commercial buildings and Excise Duty on loan processing fees (Other Fees).

NBK appealed to the Tax Appeals Tribunal (Tribunal) and a decision was issued on 23 October 2020. The Tribunal decided in favour of KRA that VAT applies on land and commercial buildings. The Tribunal on the other hand decided in favour of NBK that Excise Duty was not payable on Other Fees.

KRA and NBK disagreed with the Tribunal’s decision and filed appeals at the High Court. On 26 May 2022, the High Court ruled that VAT applies on commercial buildings and the land on which the buildings were erected. The High Court also determined that Excise Duty was applicable on Other Fees from 18 June 2013.

KRA carried out an audit on NBK for the period January 2013 to December 2015 and assessed NBK for the period audited. NBK objected to the tax assessment but the KRA dismissed the objection on the grounds that it was invalid.

KRA argued that the objection did not meet the provisions of Section 51 (3) of the Tax Procedures Act, 2015 (TPA) which provides that taxpayers can only lodge a valid tax objection application if they settle the tax liabilities that are not in contention. NBK rebutted this argument, arguing that they had applied for an extension of time to settle their tax liabilities in instalments under the provisions of Section 33 (4) of the TPA

KRA also demanded VAT on disposal of NBK’s property amounting to KES 58,868,988.08 based on paragraph 8 of Part II of the First Schedule of the VAT Act, 2013 (VAT Act). KRA argued that VAT applied on commercial premises and the land on which the premises were built. NBK countered this interpretation, arguing that the transaction was exempt from VAT.

Furthermore, KRA demanded KES 405,677,877.60 relating to Excise Duty on loan processing fees (Other Fees) on the basis that the fees were subject to tax with effect from 9 January 2013 in line with the provisions of the Finance Act, 2012. NBK contended that the Finance Act, 2012 did not define other fees and financial institutions and hence there was ambiguity. NBK was of the opinion that the tax came into effect on 18 June 2013 through the Finance Act, 2013 which defined these terms.

NBK and KRA were each partly successful when the case was determined by the Tribunal on 23 October 2020. The parties appealed against the aspects that they were unhappy with at the High Court.


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