By William Mwangi - Associate, Tax
The relevant case study
A recent judgment by the High court in Sendy Limited v Commissioner of Domestic Taxes (Income Tax Appeal E137 of 2024), delivered on October 23, 2025, clarifies that digital platforms exercising decisive control over the essential elements of a transaction are deemed principal suppliers for VAT purposes, therefore liable for VAT on the full transaction value paid by the customer, rather than just the commission income.
Background
Sendy Limited operates a digital marketplace platform connecting independent third-party transporters with customers requiring delivery services. KRA conducted an audit based on banking analysis and identified discrepancies between declared turnover and expected income from banking analysis, leading to additional VAT assessments. Sendy objected, arguing it only provided platform services and charged commissions, not transport services. The KRA upheld the VAT assessment, prompting Sendy to appeal to the Tax Appeals Tribunal (“TAT”), which ruled in Sendy’s favor. The KRA then appealed to the High Court.
KRA assertions
KRA’s position was that:
- Sendy Ltd is the principal supplier of transport services, not a mere intermediary.
- Sendy Ltd controls the entire transaction by managing customer relationships, dispatching nearest available drivers via its algorithm, setting prices, and collecting the full payment directly into its bank accounts.
- The Request for Payments (“RFP”) issued by Sendy Ltd function as tax invoices for the full delivery service under the VAT Act, therefore chargeable to tax.
- The court must look beyond the contractual form to the economic reality, where the payment to the driver is simply a cost of sale for Sendy Ltd.
From these assertions, KRA argued that this arrangement constitutes a single composite taxable supply of transport services made by Sendy Ltd to the end customer and VAT should be charged on the full consideration received per Section 5 of the VAT Act.
Taxpayer assertions
Sendy Limited argued that:
- It is a technology company providing a digital marketplace through its online platform and does not provide transport services itself.
- Its revenue is limited to the commission charged to transporters, on which it had already duly accounted for VAT.
- It relied on a 2020 private ruling from the KRA which explicitly confirmed that transporters should account for VAT on transport, while Sendy Ltd ought to account for VAT on its commissions.
Sendy Ltd aggrieved by KRA’s objection decision appealed to the TAT on the grounds that KRA had fundamentally mischaracterized its business model, in that it does not provide transport services but rather provides an online platform.
TAT ruling
The TAT originally ruled in favor of Sendy ltd. It determined that Sendy ltd was a platform provider and that the actual taxable supply of transport was made by the third-party transporters to the end customers. The TAT reasoned that because Sendy did not own the delivery vehicles, it was not engaged in the transport business. Consequently, the TAT set aside the KRA’s VAT assessment in its entirety.
High Court ruling
The High Court overturned the Tribunal’s decision and allowed the KRA’s appeal. The Court held that:
- Sendy ltd exercises a decisive degree of control over the essential elements of the transaction by setting the price, assigning the drivers, and managing the billing process, it acts as the principal supplier for VAT purposes and therefore deemed to have received the service from the driver and supplied it to the customer, making it liable for VAT on the full value of the consideration paid by the customer, not just the commission.
- While the KRA's disregard of its own private ruling was questionable, such a ruling cannot override a court's correct statutory interpretation of the law.
Impact on taxpayers
Digital market place/platform providers who previously only taxed their commission may now face massive back-dated VAT demands on their total transaction volume. The degree of control a platform exercises over the underlying supply is the critical determinant as to whether the platform becomes the principal for VAT purpose and liable to account for VAT on the full gross turnover.
This case clarifies that a Commissioner’s private ruling is not an absolute defense to a taxpayer, as it can be overturned if a court determines the underlying law should be interpreted differently.
Conclusion
The case establishes that a platform's tax liability is determined by its substantive control over the transaction, not by its contractual labels. The High Court's decision prioritizes economic reality over form, holding that by setting prices, assigning drivers, managing billing, and collecting full payment, Sendy Ltd exercised the decisive control of a principal. Consequently, it is deemed to have made a taxable supply of the underlying service for VAT purposes.
This ruling thus acknowledges the platform's central controlling role in the transaction, aligning tax liability with where genuine control and authorization reside, rather than with the party that merely performs the physical act.
Therefore, digital platforms providers must proactively assess whether their degree of control over key transaction elements effectively makes them the principal for VAT purposes, which may require accounting for VAT on the full transaction value, not merely on commission income received.