The Tax Appeals Tribunal recently clarified the issue of whether VAT applies in the sale of land in Kenya in the case of Sayani Investments Limited v Commissioner of Legal Services & Board Coordination (Tax Appeal E448 of 2023).
The case concerned the sale of a piece of land with an old, dilapidated commercial building on it. The purchaser planned to demolish the structure before completing the purchase. The vendor, Sayani Investments Limited (Sayani), treated the transaction as a sale of land, exempt from VAT, and paid capital gains tax instead. However, the Kenya Revenue Authority claimed that VAT ought to have applied because there was a commercial building on the property at the time of the sale.
The Tribunal ruled in favor of Sayani, emphasizing the following:
Definition of Land:
Under the Constitution of Kenya, land includes both its surface and what lies beneath. Whether land is developed or not does not change its essential classification as land.
VAT Exemption for Land Sales:
The VAT Act specifically exempts "the sale, renting, leasing, hiring, or letting of land or residential premises" from VAT. In interpreting this provision of the Act, the Tribunal found that the sale of land is exempt from VAT.
Distinction Between Land Sales and Letting of Premises:
The Tribunal noted that while letting commercial premises is subject to VAT, the outright sale of land is not.
The decision relied on the High Court decision where it was held that “Value Added Tax is not payable on a transaction for the purchase or sale of land whether or not the buildings thereon are residential or commercial buildings”.
Therefore, sale of land, regardless of whether it has commercial structures on it or not, is exempt from VAT.
For further information please contact Walid Khan or your relationship partner at Africa Law Partners.