Value Added Tax (VAT) on transactions for the sale or purchase of land and buildings whether commercial or residential: The Case of Kenya Revenue Authority v. David Mwangi Ndegwa (Civil Appeal No. 65 of 2019)

Background

The Kenya Revenue Authority has secured a major victory in court after Appeal judges reversed a High Court’s declaration that Value Added Tax (VAT) is not payable on transactions for the sale or purchase of land and buildings whether commercial or residential.

The appeals court on Friday said there was no ambiguity in tax laws and that supply of commercial premises is not exempted from VAT.

In the precedent-setting verdict, the judges also set aside a High Court’s order to Kenya Revenue Authority (KRA) to refund a property buyer, Mr David Ndegwa, Sh11.2 million paid as VAT taxes.

Mr Ndegwa was compelled by KRA to pay the amount after purchasing land in Kiambu town together with the building erected on it.

Upon purchasing the property from Standard Chartered Bank Kenya Ltd in 2013 at a cost of Sh70 million, the taxman demanded a sum of Sh11.2 million on account of Value Added Tax (VAT) at the rate of 16 per cent of the purchase price.

This triggered the legal dispute, where Mr Ndegwa won at the High Court in the judgement delivered in November 2018.

Brief Facts

The case stemmed from a 2013 transaction where David Ndegwa purchased a commercial property from Standard Chartered Bank for Kshs 70 million and VAT of Kes 11 million was charged, which Ndegwa paid under protest. He then applied for refund and sued KRA, arguing that Paragraph 8 of Part II of the First Schedule to the VAT Act exempted the sale of land, including buildings on it, whether residential or commercial, from VAT.

The High Court (Kasango, J.), in its judgment delivered in 2018 held that the the term 'land' as used in the provision and defined in the Constitution includes 'what is on the surface of the earth and the airspace above the surface' including property on the land, whether commercial or residential. The HC ruled in favor of Ndegwa that VAT is not applicable on the sale of commercial property and was entitled to a refund of the VAT paid.

The KRA obtained a stay of execution and appealed the decision to the Court of Appeal, which is the subject of this judgment. The KRA asserted that the exemption applied only to land (vacant land) and residential premises, not commercial premises.

The CoA, in a unanimous decision, overturned the High Court decision, holding that Paragraph 8 of Part II of the First Schedule to the VAT Act does not exempt supply by way of sale, renting, leasing, hiring, letting of commercial premises from VAT.

 Analysis:

 At the Court of Appeal, the main issues the court considered were whether the term "land" in the VAT Act includes buildings, and if so, whether VAT should be charged on the sale of land with buildings (residential or commercial), the implications of the specific mention of "residential premises" in the VAT Act and the exclusion of "commercial premises’’.

The court focused on interpretation of Paragraph 8 of Part II of the First Schedule to the VAT Act, which exempts from VAT the 'supply by way of sale, renting, leasing, hiring, letting of land or residential premises.' The provision defines 'residential premises' as 'land or a building occupied or capable of being occupied as a residence', excluding hotels or holiday accommodations. The court's reasoning was as follows:

1. Distinct terms: The use of 'land' and 'residential premises' as separate categories in the provision indicates that they are not synonymous. The legislature deliberately listed them distinctly, suggesting different scopes of exemption.

2. Clarity of language: The provision’s separation of 'land' and 'residential premises', with a specific definition for the latter, left no room for confusion. 'Land' meant vacant land, and 'residential premises' meant buildings used as residences. Commercial premises fell outside both.

3. Exclusion of commercial premises: By expressly mentioning 'residential premises' and defining it, while omitting 'commercial premises,' the court applied the maxim expressio unius est exclusio alterius (the express mention of one thing excludes others). This implied that commercial premises were not exempt and thus subject to VAT.

4. Legislative intent: The court emphasized that the VAT Act, as an exemption statute, only excludes what is explicitly listed. Since commercial premises were not included, the intention was to tax them.

5. Contextual limitation: Article 260 of the Constitution begins with 'unless the context requires otherwise,' meaning its definition applies only when suitable. The VAT Act’s specific context on tax exemptions allowed a narrower definition of 'land' excluding buildings, unless specified.

6. Statutory autonomy: The court held that the legislature can define terms differently in specific laws (e.g., VAT Act) without adhering strictly to the Constitution’s broad definition. For example, the Mining Act excludes 'minerals' from the definition of 'land'.

The court further referred to the VAT Act’s history (from 2006 onward), noting that earlier versions exempted land, residential, and non-residential buildings, but by 2013, only 'land' and 'residential premises' remained exempt. This evolution showed a deliberate shift to tax commercial premises.

Court's Determination:

The Court of Appeal began by defining land within the context of the VAT Act, 2013 and disagreed with the High Court’s interpretation. The High Court had held that the term “land” included buildings, both residential and commercial, and thus exempted them from VAT. However, the Court of Appeal clarified that the VAT Act’s definition of land must be applied within the context of the Act itself, not the broader definition provided in Article 260 of the Constitution. It rejected the High Court’s interpretation that all buildings on land, whether residential or commercial, are automatically exempt from VAT by virtue of being on land as defined by the Constitution.

The Court of Appeal also examined the VAT exemptions under the VAT Act, emphasizing that the Act is an exemption statute. As such, only supplies explicitly exempted by the Act are free from VAT. The Court reaffirmed that land and residential premises are the only categories that benefit from VAT exemptions under the Act. The exemption does not extend to commercial premises, which are not covered by the exemptions and remain subject to VAT.

In conclusion, the Court of Appeal held that the High Court had erred in its interpretation. It reaffirmed that VAT applies to commercial premises and that the exemptions under the VAT Act are limited to land and residential premises only. The appeal was allowed, and the respondent was not entitled to a VAT refund.

However, the Court did not address the applicability of VAT on mixed-use premises and it was not part of the issues before the court. It left room for future litigation where this specific question could be raised.

Conclusion/jurisprudential Implications

The judgment provides much-needed clarity in Kenya’s tax laws, especially for real estate developers, businesses, and legal practitioners, regarding the VAT treatment of residential versus commercial premises. It is now settled that VAT is applicable on sale, renting, leasing, hiring or letting of commercial premises, subject to an appeal that may be filed at the Supreme Court. Businesses and individuals involved in commercial real estate transactions should now be aware that VAT is chargeable on commercial properties.

Conclusively, the verdict of the Appeals Court brings to end uncertainty in property conveyance sector in relation to VAT levies on property disposals.

INDEFEASIBILITY OF TITLE: The Case of Kenya Church of Christ v Mwasaro & 5 others [2025] KEELC 1317 (KLR)

Brief Facts/Background:

In the case, the Kenya Church of Christ (Plaintiff) filed suit against six defendants in 2014, asserting ownership of Plot No. 3754/VI/MN at Miritini. The Plaintiff claimed to have legally acquired the land through a 2004 sale agreement based on a 1991 letter of allotment issued to Bishop Chrispus Nzano. They alleged the defendants encroached, erected structures, and obstructed access. The Plaintiff sought injunctions, demolition orders, and costs. 

The Defendants countered, asserting ancestral ties to the land through Keya Mbaya, alleging the Plaintiff’s title was fraudulently obtained via forgery by Danson Mwandoto (a former church official). They claimed to have purchased portions from intermediaries (e.g., Mrs. Adriano and Keya Mbaya) and developed permanent structures. Their counterclaim sought cancellation of the Plaintiff’s title, injunctions, and compensation. 

Issues for determination:

Who holds legal/beneficial interest in the suit property? 

Whether the Plaintiff’s title was valid? 

Whether the defendants’ counterclaim merited? 

Analysis

On Who holds legal/beneficial interest in the suit property, the court decided the Plaintiff’s registered title conferred absolute ownership under Section 24 of the Land Registration Act, and that the Defendants failed to prove overriding interests or lawful occupation. 

On Whether the plaintiff’s title is valid,  the court upheld the title’s validity, while noting that the Fraud allegations lacked specificity and proof under Section 109 of the Evidence Act. The Police recommendations were deemed unsubstantiated, as no charges were pursued, and Mwandoto testified openly in court. 

 On Whether the defendants’ counter claim merited, the court dismissed the defendants’ counterclaim since their reliance on ancestral claims and unregistered sales (e.g., via Keya Mbaya) did not override statutory title. As such, no evidence of fraud or legitimate adverse possession. 

Court’s Determination:

The court ruled in favor of the Plaintiff, declaring their title valid. Further, the court ordered, a boundary survey by the Land Registrar to identify encroachments, removal of unauthorized structures within 90 days, with eviction/demolition orders for non-compliance, and permanent injunction against Defendants’ interference. Furthermore, the counterclaim was dismissed.

Conclusion

This judgment reinforces the principle of indefeasibility of registered titles under Kenyan law, emphasizing that registration confers absolute ownership unless fraud is specifically pleaded and proved. It clarifies that mere allegations of historical occupation or unregistered transactions cannot override statutory titles.

The case underscores the judiciary’s role in upholding land registration systems to prevent disputes and promote certainty in property rights.

It also highlights the evidentiary burden for fraud claims, aligning with precedents like Vijay Morjaria v Nansingh Madhusingh Darbar, which demand rigorous proof of fraudulent intent. By dismissing speculative challenges to titles, the decision strengthens confidence in Kenya’s land administration framework. 

No automatic right of appeal without express reservation in arbitration agreement: The case of SMB Bank (Kenya) Limited v Afrasia Bank Limited [2025]

 In a recent landmark decision, the Court of Appeal in SMB Bank (Kenya) Limited v Afrasia Bank Limited [2025] KECA 386 (KLR) ruled that there is no automatic right of appeal to the Court of Appeal from a High Court decision under Section 39 of the Arbitration Act, unless expressly reserved in the arbitration agreement.

This ruling emphasises the need for clear and specific provisions in arbitration agreements regarding the right to appeal. Without such provisions, any appeal to the Court of Appeal requires leave to be granted.

This decision reinforces the principle that the arbitration process must maintain finality unless there are exceptional circumstances for appeal.

Dual Employment: The Case of Nduuru v Cooperative Bank Limited [2025] KEELRC 572 (KLR)

Brief Facts:

On dual employment, from the case cited above, the Claimant was terminated for engaging in gainful employment while still working for the Respondent. 

The court acknowledged the general principle that an employee is not prohibited from taking on additional employment unless explicitly restricted by law, company policy, an employment contract, or a Code of Conduct and Regulations. Employees may engage in other paying jobs outside their primary employer’s working hours, such as during annual leave, off days, public holidays, or weekends, particularly in the modern digital age.

Case Analysis:
However, in this case, the Claimant consistently clocked in at the Respondent’s premises from 8:00 am to 5:00 pm on workdays. 

The Claimant did not clarify when he performed his other two jobs. The court found that working full-time for the Respondent while also receiving salaries from other employers strongly suggested that the Respondent’s time and resources may have been used for the benefit of other employers. 

It also indicated a lack of full commitment to the Respondent, as it would not be humanly possible to dedicate 100% effort to multiple employers simultaneously.

Court's Findings: 

While the court recognized the possibility of managing multiple jobs in the digital era, it gave weight to the employer’s concerns, especially given the Claimant’s failure to specify when he performed his additional work. 

The Claimant admitted to providing supervision, consultation, and research services for MKU and Methodist Universities while employed by the Respondent. 

Based on this admission, the court ruled that the Respondent had valid grounds for termination. 

 

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Titles Acquired Irregularly : The Supreme Court case of Dina Management Limited v County Government of Mombasa & 5 others (Petition 8 (E010) of 2021) [2023] KESC 30 (KLR) (Constitutional and Human Rights) (21 April 2023) (Judgment).

Brief Facts/Background

In April 2023, the Supreme Court of Kenya delivered a landmark judgment in the case of Dina Management Limited v County Government of Mombasa & 5 others (Petition 8 (E010) of 2021) [2023] KESC 30 (KLR) (Constitutional and Human Rights) (21 April 2023) (Judgment). This case has significant implications for property transactions and the protection of bona fide purchasers in Kenya. 

The case arose when Dina Management Limited purchased a parcel of land in Mombasa. The company claimed to be a bona fide purchaser without notice of any irregularities.

However, the title to the land was contested by the County Government of Mombasa and other respondents, who alleged that the title had been obtained fraudulently. The core of the dispute centered on whether the protection typically afforded to bona fide purchasers should apply in cases where the title was obtained through irregular or illegal means.

Issues for Determination

1. Whether the Protection for Bona Fide Purchasers Applies to Irregular or Illegal Titles:

The court needed to determine if a purchaser who acquires property without notice of any irregularities should be protected under the bona fide purchaser doctrine, even if the title was obtained through fraudulent or illegal means.

2. The Level of Due Diligence Required:

The court also had to consider the extent of due diligence required to support a claim of being a bona fide purchaser, and what steps buyers must take to verify the legitimacy of a property's title.

Court’s Determination:

The Supreme Court in the case ruled that the protection offered to a bona fide purchaser for value without notice does not apply if the title to the property was obtained irregularly or illegally. The court emphasized that buyers have a duty to conduct thorough due diligence when purchasing property. 

Conclusion:

This judgement shifts the onus of proving the validity of the land title to the buyer, underscoring the importance of ensuring that the title is free from any encumbrances or irregularities. The court's decision is based on the principle that illegally or irregularly obtained titles cannot be defended under the bona fide purchaser doctrine.

The court highlighted that buyers must take active steps to investigate the history and legitimacy of the title before completing the purchase. This includes checking for any existing disputes, encumbrances, or legal challenges related to the property.

The ruling emphasizes the importance of due diligence, accountability, and the protection of property rights.

Buyers must now take proactive steps to verify the legitimacy of property titles before completing transactions, ensuring that they are not unknowingly acquiring irregular or illegal titles. This landmark judgment has important implications for property investors, legal practitioners, and stakeholders in Kenya's property market.

 

Full Case available here