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The recent decision in Commissioner of Domestic Taxes v Sendy Limited marks a turning point in how Kenya’s Value Added Tax (VAT) laws apply to digital platforms.In this case, the High Court held that Sendy Limited, a logistics technology company, was not merely a facilitator linking customers and drivers, but rather the principal provider of transport services.

As a result, Sendy was found liable to pay VAT on the full amount received from customers, not just on its commission.

The Case in Brief

The Kenya Revenue Authority (KRA) conducted an audit of Sendy’s filed returns and banking records, identifying discrepancies between declared turnover and actual income.

Here is a brief chronology of the events;

• December 2022: KRA issued additional VAT and Corporation Tax assessments, treating undeclared bank income as under-reported sales.
• January 2023: Sendy objected, arguing that it operated purely as a technology company connecting customers with independent third-party transporters.
  • Sendy maintained that its revenue consisted solely of commissions charged to drivers for use of its platform.
• KRA vacated the Corporation Tax assessment but confirmed Sendy’s VAT liability.
• Sendy appealed to the Tax Appeals Tribunal (TAT), which ruled in its favor in 2024.
• However, the High Court later reversed the TAT decision upon appeal by the Commissioner of Domestic Taxes.

KRA’s Argument

KRA argued that Sendy’s operations went beyond the role of a neutral platform. Specifically, Sendy:

• Determined pricing and dispatch processes;
• Issued invoices directly to customers;
• Collected all payments in its own name; and
• Paid drivers after deducting its commission.

Under Sections 5(1) and 42 of the VAT Act, KRA maintained that Sendy was effectively supplying transport services and was therefore liable for VAT on the total consideration paid by customers.

The Tribunal and High Court Decisions

In 2024, the Tax Appeals Tribunal sided with Sendy, finding that the company’s role was limited to operating a digital marketplace.

However, on appeal, Justice Helene Namisi of the High Court disagreed, emphasizing that economic reality takes precedence over contractual form.
The Court found that Sendy:

• Authorized customer charges;
• Controlled dispatch through its proprietary system; and
• Collected all customer payments directly.

Based on these findings, the Court held that Sendy was the deemed supplier for VAT purposes under Section 5(1) of the VAT Act.

Key Legal Findings

1. Substance Over Form
   Courts will look beyond contractual descriptions to determine the true nature of a transaction.
2. Control Determines Liability
   If a platform sets prices, manages payments, and allocates services, it can be deemed the supplier for VAT purposes, even if labeled as a technology intermediary.
3. Private Rulings Are Not Binding
   A prior KRA ruling under Section 65(4) of the Tax Procedures Act cannot override statutory interpretation by the courts.
4. Global Alignment
   The Court drew parallels with global cases such as Fenix International and Uber Systems Spain, affirming that digital control equates to tax accountability.

Why This Matters

The Sendy ruling significantly expands VAT exposure for Kenya’s digital economy.
It signals that platforms exercising commercial control over pricing, payments, or service allocation may be taxed on the full transaction value, not just their commission.

This decision impacts:

• Delivery and ride-hailing platforms;
• Online marketplaces and booking services;
• On-demand digital applications.

For businesses operating in Kenya’s growing digital marketplace, this case underscores the importance of understanding operational and tax structures.

Lessons for Digital Businesses

1. Review Your Business Model
   Assess whether your platform controls pricing, payment collection, or service delivery — as this may trigger VAT obligations.
2. Reassess VAT Compliance
   Ensure your VAT treatment aligns with the VAT Act and the principles established in the Sendy ruling.
3. Update Contracts
   Clearly define supplier and agent relationships to reflect the true nature of operations.
4. Seek Expert Legal Advice
   Obtain professional guidance before relying on past KRA private rulings or informal interpretations.

How Masibo Law LLP Can Help

At Masibo Law LLP, we advise technology companies, digital platforms, and investors on compliance, taxation, and structuring within Kenya’s evolving regulatory landscape.

Our team offers:

• VAT and tax compliance reviews for platform-based businesses;
• Structuring advice for technology and e-commerce operations;
• Representation in KRA audits, objections, and appeals;
• Legal support on digital economy regulation and policy.

Contact Us

📧 info@masibolaw.co.ke
For tailored legal and tax advisory on platform compliance and structuring.