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Court decision on VAT to rattle Kenya’s gig economy
Critics warn the decision could discourage participation in the gig economy, with some traders steering clear of platforms to avoid the 16 percent VAT.
Digital taxi apps, online delivery services and e-commerce platforms will be required to withhold and remit the 16 percent value-added tax (VAT) on supplies made through their platforms, following a High Court decision that is likely to rattle Kenya’s nascent gig economy.
In a landmark decision, the Kenya Revenue Authority (KRA) has been allowed to collect Sh82,248,150.74 in VAT from Sendy—the collapsed start-up that described itself as a digital marketplace, linking third-party transporters to customers—after the court found that the logistics firm controlled key aspects of its network, including billing and receiving payments in its own name.
The Tax Appeals Tribunal had ruled previously in favour of Sendy, agreeing with the start-up’s argument that it was not a provider of transport services but a platform provider.
The Tribunal held that the taxable supply of transport was made by third-party transporters to end customers, and that Sendy’s VAT should be limited to its commission.
That position was overturned by the High Court on appeal, effectively designating technology providers in the gig economy as VAT withholding agents. The court concluded that the Tribunal “erred in law” in characterising the supplies made through Sendy’s platform.
“For the foregoing reasons, this Court finds that the Tribunal erred in law in its characterisation of the supplies made through the Respondent’s platform,” Justice Helene R. Namisi said in the decision of October 23.
“An analysis based on the economic and commercial reality of the transactions, informed by persuasive jurisprudence on the VAT treatment of the platform economy, demonstrates that the Respondent (Sendy) exercises a decisive degree of control over the essential elements of the delivery service,” the judgment added.
The High Court noted that by setting terms, authorising the delivery and authorising and collecting the charge in its own name, Sendy acted as a principal in the transaction.
“It is, therefore, deemed, for VAT purposes, to have received the transport service from the third-party transporter and to have supplied that same service to the end customer. Consequently, the Respondent’s liability for VAT is on the full value of the consideration paid by the customer, and not merely on its commission.”
The verdict is expected to reverberate across the wider sharing economy, with the United Nations Conference on Trade and Development noting that Kenya’s e-commerce revenue was projected to reach Sh145.8 billion ($900 million) in 2024, with the number of users expected to hit 12.26 million.
Digital taxi and delivery platforms such as Uber, Bolt and Little Cab have consistently argued that they are “technology companies,” not transport service providers.
Their position is that they connect passengers or customers with independent drivers or couriers through their apps, which means they are not employers responsible for drivers’ taxes, licences and statutory deductions such as pension and health insurance.
While the National Transport and Safety Authority and the Ministry of Labour have not formally classified drivers as employees, drivers’ associations have repeatedly sought recognition of employment-like status to access insurance and benefits from the ride-hailing companies.
Globally, courts have chipped away at the “just a tech platform” defence.
In the United Kingdom, the Supreme Court ruled that Uber drivers are “workers,” not self-employed contractors, entitling them to minimum wage, paid leave and pension contributions. Uber had argued it was a pure technology intermediary, but the court found it exercised significant control over fares and customer interaction.
The Kenyan ruling is also likely to affect online delivery apps such as Glovo and e-commerce platforms like Jumia and Kilimall, which receive payments upon delivery before remitting to merchants. The practical effect is to push platforms further into the tax net, with VAT computed on the full value of customer consideration where platform control is established.
Critics warn the decision could discourage participation in the gig economy, with some traders steering clear of platforms to avoid the 16 percent VAT. Proponents counter that the ruling simply aligns the tax burden with commercial reality, where platforms influence pricing, payments, and terms of service.
In Kenya, when platforms are classified as service providers, they must register for VAT and remit tax on the total fare, not just commission. If they are considered employers, they may also have to deduct Pay As You Earn and contribute to the National Social Security Fund and the Social Health Insurance Fund.
The 2023 Finance Act broadened the definition of a “digital marketplace” to include any platform facilitating taxable supplies.
The High Court’s ruling now gives that framework sharper teeth by aligning tax liability with the degree of control platforms exert over transactions, potentially reshaping the cost structure—and compliance obligations—across Kenya’s platform economy.
