Authored By: Tracy Ntinyari Mbaya
Jomo Kenyatta University of Agriculture and Technology (JKUAT), School of Law
Name of the case: Kenya Revenue Authority v David Mwangi Ndegwa
Court: Court of Appeal
Date: 21 March 2025
Citation: Kenya Revenue Authority v Ndegwa [2025] KECA 510 (KLR)
The definition of land as provided for in Article 260 of the Constitution is not to be applied in all situations and contexts. This is well framed in the words used in the definition of land as it opens by stating that, “In this constitution unless the context requires otherwise- land includes …”16 Therefore, if the context does not apply, the definition will not be applicable and this is evident when a parcel of land has minerals as per the literal meaning in the constitution the landowner in this context will own the land together with the subsoil. However, the Mining Act, for instance, makes the provision that the minerals found in the subsoil in any parcel of land owned by any person vest in the National Government of Kenya and hence that part of their land that contains the minerals does not belong to the landowner.17
The court warned that the high court and the respondent have been relying on the literal application of two Latin maxims, namely, “quicquid plantatur solo solo cedit” and “cius est solum eius est asque ad coelum et ad inferas.”18 Therefore, the learned judges advised that maxims operate within a narrow range and should not be raised to the status of general legal principles. Therefore, the court alluded to the maxim “expressio unius est exclusio alterius”…19
The court emphasized that the exclusion in paragraph 8, part II of the First schedule of the VAT Act of commercial premises means that, unlike residential premises, commercial premises are subject to VAT tax. The provision in this Act also goes ahead to identify the supplies that do not consist of residential premises and hence do not fall under the tax exempt category.
In regard to the legislative history of the disputed provision. The court clarified it to be as follows;
“Previously supply of land, residential buildings and non-residential buildings were all exempt from VAT. By 2013, supply of non-residential builds was no longer exempt from VAT. What that simply indicates is that over that history, Parliament did not treat ‘residential buildings’ and ‘non-residential buildings’ as synonymous with ‘land’, when they were exempt from VAT.”20
DECISION
The Court of Appeal held in favor of the appellant, allowing the appeal and setting aside the High Court judgment. The bench of judges held that the high court erred in holding that for the purpose and context of the VAT Act, land includes the buildings erected thereon. The Bench emphasized that when it comes to the definition of land in the Constitution, it must be applied depending on the context, and nothing prevents the legislature from defining land differently, as is the case in the VAT Act 2013. Therefore, it was held that there is no ambiguity in the provisions of paragraph 8, Part II of the VAT Act. For that reason, the sale of commercial premises is subject to VAT.
SIGNIFICANCE
The Court of Appeal’s decision on the applicability of VAT taxation on commercial premises sets precedents for the taxation of real estate property transactions. This means that the First Schedule of the Act does not apply to land with commercial buildings, and those supplies that are tax-exempt are transactions involving the sale of land and residential premises, among other stipulated supplies. Therefore, this decision clarifies the taxation of real estate properties in Kenya and emphasizes the need to construe tax statutes strictly, and exemptions must be explicitly provided for by the legislature.21
From this, individuals involved in commercial real estate transactions should seek legal and tax advice before purchasing, selling, leasing, or letting commercial property so that they do not face unexpected tax liabilities.22The court also stated that since this appeal and the submissions did not delve into mixed-use developments/properties, it did not make a judgment on the same. This means that individuals should consult the KRA (tax authorities) on VAT treatment of such premises. 23
With that holding being made by the Court of Appeal, the respondent has the right to appeal to the Supreme Court, whose decision will thus be final. However, for the time being this decision stands to set a precedent.
CONCLUSION
This ruling is currently forming the precedents in the Vatable transactions under the VAT Act, and the commercial real estate sector falls under that category. It also reaffirms the need to construe tax statutes from a purposive approach and not a literal approach, as was held in the Ramsey case, and further, they should be interpreted without any intendment, bearing in mind the legislature’s intention.24 It is for the above reasons that l concur with the holding of the bench of judges in the Court of Appeal.
REFERENCE(S):
- Kenya Revenue Authority v Ndegwa [2025] KECA 510 (KLR)
- David Mwangi Ndegwa v Kenya Revenue Authority [2018] KEHC 9770 (KLR) 3. Law Society of Kenya v Attorney General & another [2019] KESC 16 (KLR)
- Ramsey v IRC (1982) AC 300 (HL)
- Cape Brandy Syndicate v Inland Revenue Commissioners [1920] 1 KB 64 6. The Constitution of Kenya 2010
- The VAT Act 2013
- Mining Act
- Diana Ndungu, ‘The Court of Appeal Upholds VAT on Commercial Properties’ (30 March 2025)https://www.dnjlaw.co.ke/blog/uncategorized/court-of-appeal-upholds-vat-on commercial-properties-in-kenya-key-takeaways-for-investors/ >accessed 19 June 2025
15 Supra note 6 para28-34
16 Constitution of Kenya, Art.260
17 Mining Act 2016,s6
18 Kenya Revenue Authority v Ndegwa [2025] KECA 510 (KLR) para44
19 Ibid note 17 para49
20 Ibid note 17 para52
21 Diana Ndungu, ‘The Court of Appeal Upholds VAT on Commercial Properties’ (30 March 2025) https://www.dnjlaw.co.ke/blog/uncategorized/court-of-appeal-upholds-vat-on-commercial-properties-in-kenya-key takeaways-for-investors/ >accessed 19 June 2025
22 Ibid note 20
23 Ibid note 20
24 Ramsey v IRC (1982) AC 300 (HL)
