As Kenya’s digital economy continues to grow, tax authorities and courts are increasingly challenged to interpret how traditional tax laws apply to innovative business models. A landmark High Court decision — now known as the Sendy VAT Ruling — has provided critical clarity on Value Added Tax (VAT) liability for digital platforms, setting a precedent that will reshape the country’s taxation of the gig economy.

Background: The KRA vs Sendy Case

The case pitted the Kenya Revenue Authority (KRA) against Sendy Limited, a digital logistics platform that connects manufacturers, distributors, and e-commerce businesses with a curated network of independent transport providers.
Sendy remitted VAT only on the commission it earned — not on the gross value of services transacted through its platform.

The central question before the court was clear:

Should a digital marketplace be liable for VAT on the total value of services transacted through its platform, or only on its commission income?

KRA’s Position: Sendy Was the Principal Supplier

The KRA’s case was grounded in the principle of “economic and commercial reality.”
It argued that Sendy Limited was not a passive intermediary but rather the principal supplier of transport services.
According to KRA, Sendy exercised a decisive degree of control over the transaction, demonstrated through:

1. Price Control – Setting delivery prices.
2. Service Allocation – Using algorithms to dispatch and control which transporter performed the service.
3. Billing and Invoicing – Issuing demands for payment in its own name.
4. Payment Collection – Receiving full payment directly into its own accounts.
5. Customer Relationship – Acting as the sole interface and brand the customer interacts with.

These elements, KRA argued, made Sendy responsible for VAT on the gross value of all services facilitated through its platform.

Sendy’s Defence: A Tech Platform, Not a Transporter

Sendy countered that it was a technology company — not a transport service provider.
Its business model focused solely on connecting customers with independent transporters. Therefore, it claimed it should be liable for VAT only on its commission.

Sendy also relied on a previous private ruling by KRA, which it believed confirmed this tax treatment and should have remained binding.

The High Court’s Decision: Substance Over Form

The High Court upheld KRA’s assessment, delivering a judgment influenced by the doctrine of “substance over form.”
Drawing guidance from the Court of Justice of the European Union (CJEU) — particularly in landmark cases involving Uber and Fenix International (OnlyFans) — the Court looked beyond contractual descriptions.

It concluded that Sendy’s level of control over essential elements of the delivery service rendered it the principal supplier for VAT purposes.
As a result, Sendy Limited was ruled liable for VAT on the full value of services transacted through its digital platform.

The Sendy VAT Ruling marks a defining moment in the taxation of Kenya’s gig economy and digital platforms. The decision has far-reaching implications:

1. Control Over Form
   The determinant of VAT liability is now the degree of economic control a platform exerts over a transaction — not how it describes itself contractually.
2. Principal vs Agent
   Platforms that set prices, control billing, and manage customer relationships are likely to be treated as principal suppliers, making them liable for VAT on the gross transaction value.
3. Alignment With Global Trends
   The decision aligns Kenya’s taxation approach with global trends in digital taxation, ensuring a level playing field between digital and traditional businesses.

By prioritizing economic reality over contractual form, the High Court has established a clear legal principle for Kenya’s evolving digital marketplace:

Significant control equals principalship for VAT purposes.

This precedent not only clarifies the tax obligations of platform operators but also emphasizes accountability and consistency within Kenya’s growing digital economy.

While the ruling raises valid questions about the finality of administrative tax rulings, it also offers greater certainty — ensuring that the nation’s rapidly expanding tech ecosystem contributes its fair share to public revenue.

Conclusion

The Sendy VAT Ruling stands as a watershed moment for Kenya’s gig economy. It underscores a shift toward recognizing economic substance in digital operations and strengthens Kenya’s alignment with international tax principles.

As digital platforms continue to redefine commerce, this ruling sends a clear message:

Platforms that control the customer experience and financial flow will now also control — and bear — the tax responsibility.

Written by Jane Esalano