KRA makes U-turn on 16 pc VAT for golf clubs

Times Tower in Nairobi, the headquarters of Kenya Revenue Authority.  

Photo credit: File | Dennis Onsongo | Nation Media Group

Annual subscription and entrance fees for golf club members will from June start attracting a 16 percent Value Added Tax (VAT) if the High Court supports the Kenya Revenue Authority (KRA) in levying the tax

In a case pending judgment, the Commissioner of Domestic Taxes wants the court to overturn a March 2020 decision by the Tax Appeals Tribunal that blocked the KRA from demanding the tax from golf clubs.

The taxman had demanded more than Sh40 million from the clubs for 2015 and 2016.

Justice Nixon Sifuna will rule on the matter on June 6.

Four golf clubs --Sigona, Thika, Kiambu and Ruiru--together with the Kenya Golf Federation, which represents amateur golfers in the country, are opposed to tax.

A ruling in favour of the KRA will trigger an upward review of subscription and entrance fees across Kenya’s golf clubs, making it the latest tax that will hit Kenya’s middle class.

The KRA argues that clubs are not open to everyone, and one must pay to be a member through registration and subscription fees.
Golf clubs have opposed the tax, arguing that they are tax-exempt.

They say that the KRA created a legitimate expectation in 2001 through a public notice issued in 2001 clarifying that clubs and associations were exempted from paying VAT. In the list of exempt fees was the annual subscription fees and admission fees.

“It is not in dispute that the respondents make available the golfing facility continuously and they receive a consideration being entrance fees and subscription fees for the same. It follows that whether or not they are a philanthropic body, they are undertaking a business,” the KRA submitted through lawyer Gaya Ochieng.

Sigona Golf Club, Thika Sports Club, Kiambu Golf Club, Ruiru Golf Club and Kenya Golf Federation told the court that the commissioner of domestic taxes clarified in 2013 that the fees cannot be subjected to VAT but made a U-turn in 2017 and demanded payments.

According to the clubs, the services offered to members are simply meant to ensure they actualise their hobbies and engage in various leisurely activities.

The clubs say that paying the entrance fees, becoming a member to that effect and then paying the annual subscription fees guarantee members ownership of the club, over and above merely allowing the members access to the clubs’ facilities and services.

And being welfare organisations, the services rendered by the clubs are exempt from VAT.

“The mere fact of requiring members to pay subscription fees does not turn the clubs into business entities or organisations undertaking their activities as a business,” the clubs said.

The clubs stated that to demand VAT which it did not collect from the members is oppressive and unjust.

Evidence submitted in court showed that the KRA issued demands between July and September 2017 but the clubs filed objections before the Tax Appeals Tribunal.

In March 2020, the tribunal quashed the demands, saying the fees were not subject to VAT at the standard rate of 16 percent.

The tribunal chaired by Moses Obonyo further held that the KRA had created an expectation to the clubs in the notice issued in 2001, which stated that clubs were tax-exempt.

In the appeal, the KRA said the golf clubs provide members and non-members with golfing facilities. The subscription and entrance fees are the consideration, which enables the members to access the facility.

“It therefore follows that the respondents were making available the golf facility and it is for that service that the members were paying the subscription fees for members and entrance fees,” the KRA said.

The taxman maintained that the clubs charge subscription fees and gate entrance fees to members as a consideration to be able to access the facility.

According to KRA, if one fails to pay the set annual subscription fees results in a member losing membership and immediately forfeits all the rights to and claim upon the club and its properties.

The KRA also disagreed with the clubs that they are welfare and philanthropic bodies as they are not registered under any law as such.

The taxman asked the court to determine whether a public notice could survive its parent Act after it was repealed. According to the KRA, the contested assessments were issued under the VAT Act, 2013, which was later repealed.

Mr Ochieng, the KRA’s lawyer, said that unless and until a public notice relating to the VAT Act, 2013 is issued, the VAT is due as demanded and in the current state, nothing is stopping the taxman from collecting the VAT.

“Public Notice No. 20 dated 1st August 2001 is therefore, repealed by operation of the law since its lapse is self-executing by application of the Statutory Instruments Act, which came into operation on 25th January 2013,” he said.

He added that the public notice cannot, therefore, be relied on as providing an exemption under the VAT Act, 2013.

The taxman submitted that a statutory instrument has a lifespan of 10 years unless it is sooner repealed or expires or a regulation is made exempting it from expiry.

The court heard that the public notice was not only contrary to the express provisions of the VAT Act, 2013 but has since ceased to be operational.

“It follows that no legitimate expectation could arise when no expression is made and the same cannot be relied upon if it is contrary to the letter of the law,” the KRA said.

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