In a significant ruling, the High Court of Kenya has delivered a judgement on a tax dispute between the Commissioner of Domestic Taxes, representing the Kenya Revenue Authority (KRA), and several prominent golf and sports clubs in the country.

The Appellant, the Commissioner of Domestic Taxes at the Kenya Revenue Authority (KRA), was pitted against the Respondents, namely Sigona Golf Club, Thika Golf Club, Kiambu Club Limited, Ruiru Sports Club, and the Kenya Golf Federation.

These entities were embroiled in a debate over the applicability of Value Added Tax (VAT) to their operations.

The court’s judgment underscored its role in facilitating the legitimate collection of taxes while guarding against “overzealousness, greed, unfairness, and unconscionableness in tax collection.”

The ruling emphasized that taxation must have a legal and rational basis, stating, “While taxes are an inevitable and a legitimate source of government revenue, we cannot tax everything and anything.”

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A critical aspect of the court's decision was its stance on the exemption created by a prior notice, which the Commissioner had attempted to disregard.

The court found that this exemption had never been formally withdrawn or scrapped.

It stated, “The said exemption has never been withdrawn or scrapped. Neither has the legitimate expectation created by the said Notice been formally extinguished or at all.”

The judgment highlighted the necessity of stakeholder participation in any changes to tax exemptions, remarking, “A legitimate expectation should not be casually stopped without stakeholder participation, or casually be deemed to have been extinguished, as attempted by the Appellant through its subject tax demand.”

The court further clarified that no subsequent notice had been issued to revoke the original exemption notice since its issuance in 2001.

The court’s ruling reaffirmed the importance of consultation and participation with stakeholders, particularly clubs and their members, before removing any tax exemptions.

It pointed out, “There is a need for consultations and participation to collate views and feedback from the stakeholders.”

In conclusion, the High Court admonished tax authorities to avoid an “unpopular and insensitive trajectory” that disregards stakeholder views, emphasizing the need for a balanced approach in tax collection.

This landmark ruling thus serves as a critical reference point for future tax disputes involving exemptions and stakeholder expectations in Kenya.