[2024] KETAT 617 (KLR)

Sendy Limited v Commissioner of Domestic Taxes (Appeal E167 of 2023) [2024] KETAT 617 (KLR) (5 April 2024) (Judgment)

Neutral citation: [2024] KETAT 617 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal E167 of 2023

E.N Wafula, Chair, E Ng'ang'a, AK Kiprotich, EN Njeru & M Makau, Members

April 5, 2024

Between

Sendy Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a private limited company whose principal business activity is a platform provider to third parties requiring transport/delivery services for third party goods.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for collecting and receiving all tax revenue. Further, under Section 5(2) of the Act, concerning the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Parts 1 & 2 of the First Schedule to the Act to assess, collect and account for all revenues under those laws.

3. The Respondent undertook an analysis of the Appellant’s records for the period January 2016 to December 2020. By its letter dated 21st December 2022 the Respondent assessed the Appellant and demanded Value Added Tax (VAT) and Corporate Income Tax (CIT) of Kshs.167,170,057. 00.

4. The Appellant filed its objection dated 18th January 2023 objecting to the entire assessment.

5. The Respondent through a letter dated 15th March 2023 communicated its Objection decision wholly accepting the Corporation tax objection and thus vacating the Corporation tax assessment while confirming the VAT assessments of Kshs.82,248,150. 74 inclusive of penalties and interest.

6. Being dissatisfied with the Respondent’s objection decision the Appellant lodged a Notice of Appeal on 13th April 2023.

The Appeal 7. The Appellant based its Appeal on the grounds in the Memorandum of Appeal dated and filed on 12th May 2023 as follows:a.That the Respondent erred in law and fact in failing to properly characterize the Appellant as a platform provider of an online digital marketplace connecting transporters to third parties requiring transportation/delivery services.b.That the Respondent erred in law and fact in finding that the Appellant is the main player and in complete control of the transaction between the transporters and the transporters' customers.c.That the Respondent erred in fact in failing to appreciate that the Appellant's role is limited to only providing access to the Sendy platform to the transporters.d.That the Respondent erred in law and fact in disregarding the information and proof clearly demonstrating that the Appellant did not provide delivery services but was only a platform provider for which the appellant received a commission and duly paid the output VAT due.e.That the Respondent erred in law and fact in irregularly, erroneously and illegally shifting the responsibility to account for VAT on the transportation services rendered by third parties.f.That the Respondent erred in law and fact in finding that the Appellant provided delivery services and made a taxable supply in accordance with Section 5 of the VAT Act,2013. g.That the Respondent erred in law and fact in finding that the Appellant issued invoices for delivery services through Request for Payments (RFPs) which RFPs were in fact statements of account to the transporters' customers.h.That the Respondent erred in law and fact in recharacterizing the transaction in complete and wanton disregard of the parties contractual intention and the respective contractual obligations.i.That the Respondent erred in fact in disregarding the binding private ruling dated 30th June 2020 that the Respondent issued to the Appellant by the Respondent, resulting in an irrational, absurd, inconsistent and patently illegal and excessive action on the part of the Respondent.j.That the Respondent erred in law and fact in concluding that the private ruling did not advise the Appellant on the taxable value for purposes of VAT while the basis of the private ruling application was in fact to seek clarity from the Respondent on the VAT treatment and parties responsible to account for VAT on the disputed transactions.

Appellant’s Case 8. The Appellant based its case on its;a.Statement of Facts dated and filed on 26th April 2023 and together with the documents annexed theretob.Appellant’s written submissions dated and filed on 22nd February 2023; andc.Appellant’s witness statements of Aman Patel dated and filed on 20th November 2023 that was admitted in evidence on oath on 8th February, 2024. a.The Respondent erred in failing to properly characterize the Appellant as a platform provider of an online digital marketplace connecting transporters to third parties requiring transportation/delivery services.

9. The Appellant averred that the thrust of the Respondent's VAT assessment is that the Appellant is not a platform provider but a provider of delivery services. Further, it is the Respondent's view that the Appellant is in complete control of the transactions between the transporters and the third parties requiring transportation/delivery services.

10. That the Appellant is a technology company providing a digital marketplace that connects transporters to their customers as clearly described on the annual financial statements.

11. That the Appellant's principal activity as set out in its audited financial statements for the audit period is the provision of a platform and software to connect users/provision of logistics platform for the delivery services.

12. That it is manifestly clear that the Appellant provides a digital marketplace in the nature of "online or electronic platform which enables users (in this case, the third party transporters) to sell or provide services (in this case, transportation service), goods or other property to other users (third parties requiring their goods to be transported)” as provided under Section 3 the Income Tax Act,Cap.470 of the laws of Kenya (ITA).

13. That the third-party transporter delivered/transported the customer's goods to the designated destination. The Appellant entered into a commission contract with the third-party transporter in which the third-party transporter would pay the Appellant a commission for each completed transportation service rendered to a third-party customer.

14. That the Appellant's role is limited to only providing access to the Sendy platform to the transporters and third parties requiring transportation services for which the Appellant received a commission from the third-party transporters for transport services successfully provided by the third-party transporters. Sendy duly paid the output VAT due on the commissions. The transporters were using the Sendy platform to find customers for their own delivery business.

15. That it is clear from the above factual pattern and transaction that the third-party transporter provided the transport services and is the subject of the disputed VAT assessment. That accordingly, the Appellant did not provide a transportation service.

16. The Respondent's basis of the confirmed VAT assessment is inconsistent. That on the one hand, the Respondent concedes the plain and uncontested fact that the Appellant need not have motor vehicles to offer transport services yet in the same breath the Respondent fails to acknowledge that for the Appellant to provide delivery/transportation services, it would have been required to enter into transport subcontracting agreements. That instead, the Appellant entered into Commission agreements with the third-party transporters which goes to buttress the Appellant's singular role as a platform provider. The Appellant disagrees with this inconsistency of approach and avers that it did not provide transportation services. That accordingly, the Appellant had no obligation to account for output VAT and the VAT assessment of Kshs. 82,248,150. 74 ought to be vacated in toto.

SUBPARA b)The Respondent erred in law and fact in disregarding the information and proof clearly demonstrating that the Appellant did not provide delivery services but was only a platform provider 17. That the Respondent's assessment irregularly recharacterizes the transaction in complete and wanton disregard of the parties' contractual intention and respective contractual obligations. The Appellant entered into commission agreements with the third-party providers of the delivery/transportation services.

18. That the Respondent disregarded the information and proof clearly demonstrating that the Appellant did not provide delivery services but was only a platform provider for which the Appellant received a commission and duly paid the output VAT due.

19. The Appellant drew the attention of this Honourable Tribunal to the terms and conditions of the attached Commission agreements with third-party transporters in page 57 to this Statement of Facts. The terms stipulated the nature of the relationship and the responsibilities of the Appellant and the third-party transporters. That from this, its clear that it was the responsibility of the third-party transporters to invoice their customers for the delivery/transportation service provided and to follow up for payments of any unpaid amounts from the customers for whom the goods were delivered.

20. That additionally, and instructively, the commission agreements between the Appellant and the third-party transporters states that:-“Sendy's role is purely to provide a marketplace via the Sendy platform that connects the drivers to the customers and the responsibility relating to billing, accounting, insurance is borne by the drivers."

21. The Appellant contented that the Respondent therefore gravely erred in seeking to recharacterizes the transaction and concluding that the Appellant was in complete control of the delivery transaction. That it is manifestly clear the third-party transporters were in complete control of the service provided to the customer and transaction between themselves and the customer and that the Appellant did not have any control over how the third-party drivers/transporters delivered the transportation services.

22. That it is trite law that the Respondent cannot re-write the contract between the third-party transporters and their customers especially because the doctrine of privity of contract is sacrosanct. That there is also no collateral contract between the Appellant and the customer whose goods are transported by the third-party transporter. That the Respondent's attempt to rewrite the contract is illegal, irregular and lacks a basis in law. That consequently, the Respondent's findings and VAT assessment are not only inaccurate and unreasonable but also unfair to the Appellant since the Appellant's role was limited to provision of a digital marketplace.

c)The Respondent grossly erred in irregularly and illegally shifting the responsibility to account for VAT on the transportation services rendered by third parties to the Appellant 23. That the Respondent's assessment was premised on the erroneous finding that the Appellant provided delivery services and made a taxable supply in accordance with Section 5 of the VAT Act,2013. That this erroneous conclusion invariably led to the irregular and illegal shifting of the responsibility to account for output VAT on the transportation services rendered by third party transporters from the third-party transporters to the Appellant.

24. The Respondent grievously erred in finding that the Appellant billed for delivery services through Request for Payments (RFPs) which RFPs were in fact statements of account to the third-party transporters' customers. The Appellant would not have a basis, legally or contractually, to raise invoices to the third-party transporters' customers as the Appellant did not provide the delivery/transportation service. Additionally, there was no privity of contract or contract at all as between the Appellant and the third-party transporters to warrant the Appellant's invoicing of the customers.

25. That the only taxable supply the Appellant made was to provide access to the Sendy Platform to the third-party transporters for which the Appellant received a commission and duly paid the output VAT due. That pursuant to the provisions of Section 5 of the VAT Act, it was the third-party transporters that provided the delivery/transportation services and it was the third-party transporters' responsibility to account for VAT where they met the VAT registration and accounting threshold in line with Sections 5 and 34 of the VAT Act. Accordingly, the Appellant has no VAT obligation for the delivery/transportation services contrary to the Respondent's erroneous assertions.

26. That in seeking to collect the output VAT due on the delivery/transportation services clearly provided by third-party transporters from the Appellant, the Respondent is irregularly and illegally shifting its tax compliance and administration mandate from the supplier of the transportation service to the Appellant. That accordingly, the Respondent's actions amount to an abdication and dereliction of its duty and this Honourable Tribunal must not countenance it.

27. That in any event and without prejudice to the foregoing, by the Appellant operating the platform, there was no VAT leakage as the transporters were mostly small-scale and would not have met the VAT registration threshold for the transportation services rendered to customers.

28. That attached on pages 59 to 62 of the Appellant’s Statement of Facts is an analysis of the annual pay-outs to the third-party transporters to demonstrate this fact. That accordingly, with the transporters having not met the annual VAT registration threshold of Kshs. 5,000,000, as prescribed under the VAT Act, no VAT obligation arises even on the part of the third-party transporters.

d) The Respondent erred in fact in disregarding the binding private ruling dated 30th June 2020 that the Respondent issued to the Appellant resulting in an irrational, inconsistent and patently illegal and excessive action on the part of the Respondent. 29. That as a responsible corporate citizen and in recognition of its obligations to comply with the tax law, the Appellant sought the correct interpretation of the VAT law with regard to its business model in which it provided a platform and third-party transporters provided transportation services through an application for a private ruling to the Respondent.

30. That in a surprising turn of events and despite the clear and unequivocal provisions of Section 65 and 65(4)of the Tax Procedures Act,2015,the Respondent disregarded the binding private ruling dated 30th June 2020 and issued to the Appellant in arriving at its objection decision.

31. The Appellant, having made a complete and accurate disclosure of the transaction, asserted that by dint of Section 65(4) of the TPA, the Commissioner's private ruling is binding on the Commissioner. That accordingly, the Commissioner's impugned VAT assessment of Kshs 82,248,150. 74 is in breach of the TPA and ought not to stand.

32. That the Respondent premised its disregard of the private ruling on the basis that the ruling was beyond scope and concluded that the private ruling did not advise the Appellant on the taxable value for purposes of VAT.

33. That the Responded erred in arriving at this conclusion as the basis of the private ruling application was in fact to seek clarity from the Respondent on the VAT treatment and parties responsible to account for VAT on the disputed transactions. The Respondent clearly and unequivocally ruled that third-party transporters who have attained the VAT registration threshold ought to charge and account for output VAT on the transportation services rendered. The Commissioner further ruled that Sendy ought to account for VAT on its commissions which Sendy has faithfully done.

34. That in the face of the clear statutory provisions of the TPA, the Respondent's impugned assessment and demand of Kshs. 82,248,150. 74 breaches the Appellant's legitimate expectation which breach ought not be countenanced by this Honourable Tribunal.

35. That consequently, the Respondent's VAT assessments are excessive, inconsistent, and patently illegal and cannot stand. The Respondent's VAT assessments for this period in the amount of Kshs. 82,248,150. 74 ought to be vacated in toto.

36. According to the Appellant’s witness, during the audit period, the Appellant operated as an asset light company. The Appellant did not own any trucks or bikes used for the delivery services That accordingly, the Appellant only provided a digital platform through which it connected drivers and customers who sought transportation services.

37. The Appellant further submitted that on the basis of the Appellant's business model, the Appellant paid Corporate income tax and VAT on the revenue generated from the use of its platform. That specifically, the Appellant earned a commission from the transportation service provided by the transporter and the Appellant charged and accounted for output VAT on this commission income.

38. The Appellant further submitted that the Respondent's VAT assessment was based on the miscomprehension of the Appellant's business model which resulted in the Respondent demanding VAT from the Appellant for transportation of goods and services.

39. The Appellant submitted that Appellant's delivery platform enables customers to place delivery requests through the digital platform and the Appellant's platform then links the requesting customer to the closest available driver.

40. That in respect of the Appellant's platform, the Appellant submitted that the drivers are independent contractors that provide the delivery/transportation service to the requesting customer.

41. To buttress this point of drivers being independent contractors, the Appellant submitted that it signed contracts with the drivers and the contracts clearly stipulated that the drivers are the transport service providers and therefore the drivers bear the responsibility to account for all attendant taxes, including VAT on the transportation service where applicable.

42. That for the audit period, the Appellant did not engage in transportation services but merely offered a digital delivery platform connecting businesses and individuals with independent third-party drivers to facilitate deliveries to customers.

43. The Appellant submitted that it paid its VAT obligations in relation to the use of its digital delivery platforms which taxes are not in dispute.

44. That, notwithstanding the Respondent acknowledging that the Appellant did not own any trucks or bikes used for the transportation services, the Respondent in its tax assessments inexplicably demanded VAT from the transportation services.

45. That in accordance with the VAT DMS Regulations and the Appellant having met the definition of a digital marketplace (as per Section 5 (9) of the VAT Act 2013, the Appellant's met its tax obligations as captured in Regulation 3(k) as read with Regulation 4 of the VAT Digital Marketplace Supply Regulations, 2020.

46. That based on the above analysis and business model, the Appellant submitted that in respect to the digital delivery platform connecting businesses and individuals with drivers so as to facilitate deliveries to customers is liable to VAT only to the extent of the commission from the digital marketplace supply, which VAT the Appellant duly accounted for.

47. The Appellant averred that it provides a market place platform which enables the connection of the transporters to the respective customers through the Sendy platform an application which is hosted on Google Playstore and Appstore. The application enables customers to order transportation or delivery services provided by the third-party transporters.

48. The Appellant stated that it was its primary role in the transaction was the provision of a platform for use by the third-party transporters and the customers.

49. The Appellant made reference to its objection in which part 2. 1 and 2. 2 outlines in detail, the transaction and why the Respondent's interpretation of the transaction is wrong. In support of this, the Appellant also made reference to the Respondent's Statement of Facts, specifically paragraph 16 in which the Respondent clearly stated that the Appellant offers a digital platform for customers to make delivery requests.

50. Further, the Appellant argued the Respondent in Paragraph 19 of its Statement of Facts, clearly outlined that commissions retained act as compensation for use of the platform and access to the digital platform and that transporters withdraw their earnings. It is clear therefore that the transport service is rendered by independent third parties and the Appellant has no obligation to account for output VAT on the transportation service which the Respondent has assessed VAT was not provided by the Appellant.

51. The Appellant averred that the Respondent has in no way disproved the Appellant's assertions and this is further supported by the facts that the Respondent in its Statement of Facts clearly admitted to the transaction flow as outlined by the Appellant in its objection.

52. That in addition, the Appellant submitted that contrary to the Paragraph 28 of the Respondent's Statements of Facts, no evidence was presented to the Tribunal to show the deficiency, irrelevance or incompetence of the Appellant's documents in its objection, and neither is the request for additional documentation presented to the Tribunal. That therefore, mere allegations that the statutory documents provided were not sufficient without providing the details of the insufficiency.

53. That from the above, it is manifestly clear that the Appellant's liability in relation to its digital delivery platform and under VAT is limited to the commission the Appellant receives from the use and access of the platform. That on this basis, it is improper for the Respondent to demand VAT from the Appellant.

Appellant’s Prayer 54. The Appellant prayed to this Tribunal for the following Orders:-a.That the demand notice and the Commissioner’s objection decision setting out and confirming the VAT assessments of Kshs. 82,248,150. 74 be declared null and void and be set aside in its entirety.b.The Appeal be allowed with costs to the Appellant; andc.Any other remedies that the Honourable Tribunal deems just and reasonable.

Respondent’s Case 55. The Respondent opposed this Appeal while relying on its:a.Statement of Facts dated and filed on 26th May 2023. b.Written Submissions dated 3rd November 2023 and filed on the 15th November 2023.

56. The Respondent averred that the Appellant was selected for audit by the EON/SON audit office after analysis of the returns filed, declarations made and the taxes paid in the wholesale and retail sector. The Appellant was issued with audit notice on November 1st 2021.

57. That the Respondent issued Income tax-Company and VAT additional assessments after audit tests established variances between the Appellant’s turnover as per filed returns, both Income tax and VAT, and expected income from banking analysis.

58. That the Respondent issued a notice of assessment on 21st December 2022 and the Appellant objected to the additional assessments on 18th January 2023.

59. The Respondent averred that it was the Appellant’s position that the assessment is based on an erroneous understanding that in the period under review, it operated as a traditional transport/courier company whereas it operated a service delivery platform which allowed people/businesses in need of delivery services and owners of transport means (transporters) to connect. That there is no ambiguity as to the Appellant's principal business activity.

60. The Respondent averred that while assessing the Appellant, it raised the VAT assessments on the variances established from banking receipts and turnover as per VAT returns. The Respondent argued that the Appellant offered vatable services and the variances established were brought to charge in accordance with the provisions of Section 31 of the Tax Procedures Act,2015.

61. That the Appellant averred that the Respondent erred in demanding that the Appellant accounts for VAT on transport, a service it did not provide. That it is the responsibility of the transporters to account for VAT on transport services where they meet the legal requirement for VAT obligation.

62. The Respondent observed that the determination of taxable value under Section 13 of the VAT Act requires inclusion of all the costs leading to the final price charged to the final consumer.

63. That furthermore, disbursements (consideration in services transactions) have to clearly be in a tripartite relationship where one party is an agent of either of the principals which is not the case in this arrangement.

64. The Respondent averred that the Appellant, further made reference to a private ruling issued by the Respondent. The Respondent observed that the ruling was dated on 30th June 2020 which implies it cannot be applied retrospectively.

65. That furthermore, the private ruling is not contradictory as alleged by the Appellant. It however was a guide in relation to the use of the Appellant's platform for the hire of transport, and commission on insurance brokerage. The Respondent averred that these were taxable supplies subject to VAT at the standard rate.

66. The Respondent also noted that the ruling did not specify the taxable value of the Appellant's taxable supplies. That furthermore the Appellant provided Request for Payments(RFPs), which are basically invoices. These RFPs clearly made a demand for payment on delivery services, and the amount demanded was the full amount for the service provided.

67. That in view of the above, The Respondent recommended bringing to charge the variances established subject to adjustment of income from investors.

68. The Respondent stated that the transactions flow was as follows:i.Customers place delivery requests through the Appellant digital platform.ii.The Appellant then dispatches these requests in real time to the next available partner(transporter) who then makes the delivery.iii.The transporter charges customers for delivery and the Appellant then collects these charges from respective customers on behalf of the transporters through a Request For Payment(RFP)iv.The customers then deposits the delivery payments into the Appellant's bank accounts. The transporters then withdraw their payments via MPESA and the Appellant retains a percentage of the delivery fee as commission being compensation for access and use of the digital platform.

69. That the Appellant was registered for business on 22nd April 2014 and commenced operations on the same day.

70. The Respondent issued Income Tax-Company and VAT additional assessments after audit tests established variances between the Appellant’s turnover as per filed returns, both Income tax and VAT, and expected income from banking analysis.

71. The Respondent stated that it treated the variances as undeclared sales and brought to charge as shown on the tables below:-Corporation Tax2017 2018 2019 Totals

Derived Income from Banking 143,028,361 174,565,082 169,865,064 487,458,507

Sales As Per Accounts 15,687,188 163,759,143 155,440,273 334,886,604

Variances 127,341,173 10,805,939 14,424,791 152,571,903

Tax 30% 38,202,351. 95 3,241,781. 79 4,327,437. 22 45,771,571

Penalty 5% 1,910,117. 60 162,089. 09 216,371. 86 2,288,579

Interest 20,629,270 1,361,548 1,298,231 23,289,050

Total tax 60,741,739. 60 4,765,419. 23 5,842,040. 24 71,349,199

72. That the notice of assessment was issued on 21st December 2022 and the Appellant objected to the additional assessments on 18th January 2023.

73. On whether to vacate the additional assessments in line with the grounds of objection presented by the taxpayer, the Respondent’s observations and recommendations included reviewing the documents below;a.Audited financial statementsb.Appellant’s filed returnsc.Records of transporter payouts, Appellant's reconciliations, and the private ruling

74. The Respondent averred that it requested for documents supporting the Appellant's objections via iTax on the same day the assessment was confirmed and the Respondent then issued an Objection decision.

75. The Respondent posited that it had also looked at the Private ruling and that Section 31(1) of the Tax Procedures Act with regards to amendments of assessments provides that:-“(1)Subject to this section, the Respondent may amend an assessment (referred to in this section as the "original assessment") by making alterations or additions, from the available formation and to the best of the Respondent's judgement, to the original assessment of a Appellant for a reporting period to ensure.”

76. The Respondent also stated that upon objection to the VAT assessments, the Appellant failed to provide any supporting documentation to support the objection leading to the confirmation of the additional VAT assessments.

77. The Respondent relied on Section 17(3) (a) of the VAT Act, 2013 which requires the Appellant to possess original tax invoices for the supply or certified copies thereof. That the Appellant had not complied with this Sections to date.

78. Section 17(3) (a) of the VAT Act, 2013 provides that:-“The documentation for the purposes of subsection (2) shall be-a.An original tax invoice issued for the supply or a certified copy;b.A customs entry duly certified by the proper officer and a receipt for the payment of tax;c.a customs receipt and a certificate signed by the proper officer stating the amount of tax paid, in the case of goods purchased from a customs auction;d.A credit note in the case of input tax deducted under section 16(2); ore.A debit note in the case of input tax deducted under section 16(5).” 79. The Respondent averred that the Appellant failed to provide supporting evidential documents, leading to the confirmation of the VAT assessments.

80. The Respondent was also guided by Section 51 (3) and 51(4) of the Tax Procedures Act and Section 43(3) of the VAT Act where the Respondent stated that the Appellant’s objection was disallowed as there were no invoices to be identified for comparisons on the Appellant's suppliers' VAT declarations and the Appellant's VAT declaration. That the Appellant failed to provide evidence to explain the inconsistencies as per the provision of Section 51 (3) of the Tax Procedures Act.

81. That Section 51(3) of the Tax Procedures Act provides that:“(3)A notice of objection shall be treated as validly lodged by a Appellant under subsection (2) if-(a)The notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments; and(b)In relation to an objection to an assessment, the Appellant has paid the entire amount of tax due under the assessment that is not in dispute.”

82. The Respondent stated that the Appellant's Objection was invalid as the Appellant failed to precisely state the grounds of Objection, and the amendments that were required to provide correct/change the decision. That the allegations of the Appellant as laid out in its Memorandum of Appeal and Statement of Facts unless where in agreement by the Respondent are unfounded in law and not supported by evidence.

83. The Respondent reiterated that the Appellant had failed to discharge his burden of proof in proving that the Respondent's tax decision is incorrect as per the provisions of Section 56(1) of the Tax Procedures Act.

Respondent’s Prayer 84. The Respondent prayed for orders that:a.The Respondent’s decision together with the penalties and interests be found to be due and payableb.This Appeal be dismissed with costs to the Respondent as the same is without merit.

Issues for Determination 85. The Tribunal having carefully considered the pleadings filed and the evidence tendered is of the view that there is one issue that calls for its determination: Whether the Appellant offered transport services chargeable to VAT.

Analysis and Findings 86. The Tribunal having determined the issue falling for its determination proceeds to analyse the same as hereunder.

87. The Respondent issued an assessment on the Appellant from the variances established from banking receipts and the turnover as per the VAT returns arguing that the banking receipts represented income from vatable services.

88. The Appellant averred that the assessment was based on an erroneous understanding of its business as a traditional transport/courier company whereas it operated a service delivery platform which allowed people/businesses in need of delivery services and owners of transport means (transporters) to connect.

89. The Tribunal has observed that the Appellant’s business model has a transaction flow as outlined by the Respondent which is as follows:i.Customers place delivery requests through the Appellant digital platform.ii.The Appellant then dispatches these requests in real time to the next available partner(transporter) who then makes the delivery.iii.The transporter charges customers for delivery and the Appellant then collects these charges from respective customers on behalf of the transporters through a Request For Payment(RFP)iv.The customers then deposits the delivery payments into the Appellant's bank accounts. The transporters then withdraw their payments via MPESA and the Appellant retains a percentage of the delivery fee as commission being compensation for access and use of the digital platform.

90. It was the Respondent’s argument that the Appellant was the main player and in complete control of the transaction however, from the transaction flow it is clear that in stage (iii), as outline above, that it is the transporter that charges the customer for the transport service. Stage (iv) captures the role of the Appellant which is to collect payment of the service and remit the same to the transporters.

91. Section 5 (1) of the VAT Act, places the burden of charging VAT on services on a supplier of the services. Section 5 (1) of the VAT provides as follows:“A tax, to be known as value added tax, shall be charged in accordance with the provisions of this Act on –(a)a taxable supply made by a registered person in Kenya;(b)the importation of taxable goods; and(c)a supply of imported taxable services.”

92. Flowing from the above, the provider of the transport services being the transporter bore the responsibility of charging VAT subject to the provisions of the VAT Act.

93. The Tribunal notes that the Appellant did not own any trucks, bikes or any other mode of transportation used for the delivery services and only provided a service plat form through which it connected drivers and customers who sought transportation services and collected payments on behalf of the transporters.

94. The Appellant collects the said amounts by issuing a request for payment (RFP) to the customers. This RFP is what the Respondent has termed as an invoice in its objection decision and therefore treated as a taxable amount.

95. The Tribunal having established the provider of the service was the transporter, the transporter ought to have issued a taxable invoice as provided under Section 42 (1) of the VAT Act which provides as follows;“Subject to subsection (2), a registered person who makes a taxable supply shall, at the time of the supply furnish the purchaser with the tax invoice containing the prescribed details for the supply”

96. The Tribunal notes that the relationship between the transporters and the Appellant was one where each provided distinct services with the Appellant proving a service to the transporter and transporter providing a service to the end customer. It is not a transport service supplied by the transporter to the Appellant who then resold to the end users. Once a transport service is a supply it is absurd to purport the same service can be resold.

97. The Tribunal further observes that the Appellant only retains a percentage of the total RFP amount as a commission, being compensation for access and use of the digital platform and payment collection service. These services are chargeable to VAT.

98. The Tribunal is guided by the holding of the High Court in Keroche Industries Limited V Kenya Revenue Authority & 5 Others (2007) eKLR in which it stated as thus:-“the taxman is not permitted to go on a frolic of his own to impose tax not specifically permitted."

99. From the foregoing analysis the Tribunal finds that the Appellant did not provide transport services that are chargeable to VAT.

Final Decision 100. In view of the foregoing, the Tribunal finds that the Appeal is meritorious and accordingly makes the following Orders;a.That the Appeal be and is hereby allowed.b.That the Objection decision dated 15th March 2023 be and is hereby set aside.c.Each Party to bear its own costs.

101. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 5TH DAY OF APRIL, 2024. ERIC NYONGESA WAFULA - CHAIRMANEUNICE NG’ANG’A - MEMBERABRAHAM K. KIPROTICH - MEMBERELISHAH N. NJERU - MEMBERMUTISO MAKAU - MEMBER