KRA blocked from taxing property service charges
The Tax Appeals Tribunal in Kenya has ruled that service charges collected by property management firms are not subject to income tax or VAT. The decision follows a four-year dispute involving Nextgen Mall, which argued that these funds are merely held in trust for unit owners to cover maintenance costs.
Why it matters
This ruling sets a significant legal precedent for property management companies across Kenya, potentially shielding them from millions in tax liabilities and clarifying the tax status of common area maintenance funds.
The Kenya Revenue Authority (KRA) has been blocked from demanding taxes on service charge collections by building and estate managers following a four-year dispute with Nextgen Mall Management Company.
The Tax Appeals Tribunal ruled that Nextgen Mall Management Company only handled funds as a conduit for unit owners to obtain basic upkeep services like grass cutting, security, bin cleaning, and management fees.
It ruled that the monies it held from service charges and property owners' contributions were not earnings that should attract income tax and value-added tax (VAT), setting a precedent in an era that has seen the rise of management companies taking charge of upkeep in gated communities, office blocks and apartments.
The taxman, through the Commissioner of Domestic Taxes, had slapped Nextgen with a Sh119.8 million income tax and value-added tax (VAT) claim, dating back to 2016.
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