WHAT THE SENDY LTD HIGH COURT CASE MEANS FOR DIGITAL PLATFORMS & BUSINESSES
INTRODUCTION
Technology has greatly evolved, and with such, digital platforms have transformed how business is done in Kenya and beyond. Many businesses now fully operate on digital platforms, whereby their business models involve providing services without owning physical assets, yet they play a critical role in connecting customers,
service providers, and payments. As these business models have grown, so too have questions around Value Added Tax (VAT). The drafters of the Value Added Tax Act (Cap 476) designed the provisions therein
with tangible goods and identifiable services in mind. However, applying the said provisions to digital platforms has proved to be more complex.
Recent decisions from the Tax Appeals Tribunal and the High Court have shown the complexity of applying provisions of the VAT Act on digital platforms. This article explores how VAT works in general, why digital platforms present unique challenges, and what recent decisions from the tribunal and the High Court mean for businesses operating in Kenya’s digital economy.
WHAT IS VAT AS PROVIDED BY LAW?
VAT in Kenya (as per the Value Added Tax Act Cap. 476) is a consumption tax imposed on the supply of goods and services. Although businesses are required to collect and remit VAT, the tax is ultimately borne by the end consumer.
When a VAT-registered business sells goods or services, it adds VAT to the selling price (this is called output VAT). The business can also claim back the VAT it has paid on its own business purchases and
expenses (this is called input VAT). The business then remits the difference between the VAT it collected and the VAT it paid. For VAT to apply, three basic conditions must be met:
1. There must be a supply of goods or services.
2. The supply must be made by a person or business registered (or required to be registered) for VAT.
The supply must be made in the course of doing business in Kenya.
This sounds simple, but more often than not, problems can arise in practice. Sometimes it is not clear whether a supply has actually been made, who is making the supply, or what exactly is being supplied.
This is especially common in business models, such as digital platforms, as explained below.
WHY DIGITAL PLATFORMS
TRADITIONAL VAT THINKING
CHALLENGE
The reason why applying the traditional rules of VAT on digital platforms is complex is that most of these digital platforms only act as intermediaries. They act as “middlemen” connecting consumers to service providers. They only provide the technology to facilitate the transactions, and in many instances, they are not the ones who provide the actual services. Take for example, the common digital platforms only to the platform’s commission or service fee? Who is responsible for accounting for VAT in the overall transaction?
These questions have raised disputes with the Taxman, who in most instances takes a broad interpretation in relation to payable VAT. Recent court decisions have now provided the much needed guidance on such disputes.
DECISIONS EMERGING FROM THE COURTS
In a recent High Court decision in Commissioner of Domestic Taxes v Sendy Limited (Income Tax Appeal E137 of 2024) [2025] KEHC 14814 (KLR), the court clarified instances where digital platforms may be deemed to be principal suppliers for VAT purposes, therefore liable for VAT on the full transaction paid by the customer rather than just the commission or service fee. like “Uber”, “Airbnb”, “Jumia”, just to name but a few.
Background This unique situation raises important questions. Is the platform supplying a service to the customer, or is it simply enabling a transaction between third parties? Should VAT apply to the full value
of the transaction, or Sendy Limited (Respondent) operated a digital marketplace for delivery services
connecting third-party customers with independent transporters.
According to the Respondent, the transport services were provided by the third-party suppliers, and the Respondent’s income was limited to its commissions charged to the transporters for the use of its platform.
In its case before the Tax Appeals Tribunal, the Respondent showed its audited financial statements,
sample commission agreements with transporters, and witness testimony to support its assertion that it had
accounted for the VAT on its commissions. Additionally, the Respondent had earlier received a private ruling from the Appellant that the Respondent was liable for VAT only on its commissions. The Tribunal ruled in the
Respondent’s favor, finding that it did not provide transport services.
The Commissioner of Domestic Taxes (Appellant), on the other hand, stated that the Respondent was the principal supplier of the transport services. According to the Appellant, the Respondent exercised significant control over the services provided on its platform. The Respondent controlled the customer relationship
through its digital application, dispatched the nearest available driver, determined the price, issued the demand for payment, and, most importantly, received full payment for the services.
The Appellant therefore argued that the Respondent was liable for VAT on all fees collected from the customers, not just from commission. Determination The main issue for determination was whether the Tribunal erred in concluding that the Respondent was not supplying transport services. In addressing this issue, the court examined section 5 of the VAT Act and noted that the Act provides for a broad definition for supply of goods, but it does not establish specific criteria for identifying the supplier in intricate, multi-party arrangements conducted through digital platforms.
In the absence of specific provision under our domestic laws, the court turned to jurisprudence arising from the Court of Justice of the European Union (CJEU) under the harmonized EU VAT framework. A foundational principle in EU VAT Law is that the characterization of a transaction must be based on its objective characteristics, reflecting its economic and commercial reality.
It considered Article 28 of the EU VAT Directive, which stipulates that an intermediary acting in its own name but on behalf of another is treated as having both received and supplied the underlying service. The court reviewed several CJEU authorities, including a decision establishing that a digital platform is presumed to act in its own name and thus to be the deemed supplier, where it participates in the supply. The CJEU further held that this presumption becomes conclusive where the platform either;
(i) authorizes the charge to the customer or the delivery of the service, or
(ii) determines the general terms and conditions of the supply. In short, the degree of control a platform
exercises over the underlying supply is the critical determinant. As such, the High Court overturned the
decision of the Tribunal and allowed the Appeal. It found that Sendy Ltd exercised substantial control
over the core components of the transaction by fixing prices, allocating drivers, and overseeing the invoicing and payment process. On that basis, the Court concluded that Sendy functioned as the principal supplier for VAT purposes.
With respect to the prior private ruling from the KRA, the court acknowledged that Section
65 of the Tax Procedures Act renders such rulings binding to the commissioner. However, it held that this binding effect does not diminish the judiciary’s constitutional mandate to interpret laws.
IMPLICATIONS OF THE JURISPRUDENCE FROM THE COURT
The emerging jurisprudence implies that VAT compliance for digital business requires meticulous planning. Their liability for VAT compliance is determined by their substantive role in the transactions rather than what they have labelled themselves. Therefore, businesses in the digital platform should regularly review their positions to ensure they are always compliant.
The decision also means that taxpayers might have to reconsider prior private rulings from the KRA, because while Section 65 of the Tax Procedures Act renders such rulings binding to the commissioner, the court stated that it cannot diminish the role of the Courts in interpreting the law.
HOW ESK ADVOCATES LLP CAN ASSIST
The Sendy Limited decision confirms that VAT liability in Kenya’s digital economy depends on economic
substance and operational control — not labels. Our Tax Law Practice helps digital platforms, fintech
companies, SMEs, and corporates assess and manage VAT risk with clarity and precision.
We assist with : VAT risk assessments for digital platforms Structuring marketplace and commission models
KRA objections, tax disputes, and appeals Private ruling applications and regulatory advisory
Proactive VAT compliance reviews If your business controls pricing, customer relationships, or payment flows, your VAT exposure may extend beyond commissions.
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