The high court has barred the Kenya Revenue Authority (KRA) from imposing a 16% Value Added Tax (VAT) on membership and entrance fees for Ruiru, Sigona, Thika, and Kiambu Golf Clubs.
The dispute began when KRA conducted a compliance check in 2016 and 2017, discovering that these golf clubs were not charging VAT on their membership and entrance fees. KRA argued that these fees should be subject to VAT, as they are payments for services rendered by the clubs. The tax authority demanded over KSh 40 million from the clubs for the years 2015 and 2016.
However, the golf clubs contended that they were exempt from VAT under Paragraph II Part II of the First Schedule of the VAT Act 2013, as clarified by a public notice issued in 2001. They argued that the fees were contributions towards the maintenance and operations of the clubs, not payments for services or goods.
Justice Nixon Sifuna upheld the decision of the Tax Appeals Tribunal from March 2020, which had ruled in favor of the golf clubs. The judge emphasized that the membership and entrance fees are not taxable as they do not constitute payments for goods or services. Instead, these fees are used for the upkeep of the club facilities and the retention of membership.
The court distinguished between “capital” and “income,” noting that the fees in question are part of the capital used for maintaining the clubs, rather than income generated from business activities. Therefore, they do not fall under the purview of VAT.
This ruling sets a precedent for other recreational clubs and organizations operating on a non-profit basis. It reinforces the principle that not all payments received by such entities are subject to VAT, particularly when they are used solely for maintenance and operational purposes.
