Kenya’s High Court Ruling on VAT and the Gig Economy: Implications for Digital Platforms

Kenya’s digital and gig economy has expanded rapidly over the past decade, driven by platforms connecting users to transport, logistics, delivery, and e-commerce services. Until recently, the tax treatment of these models remained unsettled particularly whether platforms merely facilitate third-party transactions or act as principals supplying taxable services.

A landmark High Court ruling issued on 23 October 2025 against Sendy, a collapsed logistics start-up, has now provided critical clarification. The Court concluded that Sendy was not simply a marketplace collecting commissions but a supplier of transport services for VAT purposes. As such, VAT was due on the entire customer payment, not just the platform’s facilitation fee.

The ruling is expected to reshape Kenya’s digital tax landscape, influencing business models, contractual structures, compliance controls and platform-worker relationships.

Background to the Dispute

Sendy had previously secured a favourable decision at the Tax Appeals Tribunal (TAT), which accepted the argument that it simply connected customers to independent transporters. Under this interpretation, VAT applied only to the commission element.

The Kenya Revenue Authority (KRA) appealed, arguing that the Tribunal had failed to appreciate the commercial reality of Sendy’s operating model. The High Court agreed, overturning the TAT’s decision and authorising the KRA to recover KES 82.2 million (approximately USD 635,000) in unpaid VAT. Sendy’s insolvency status does not extinguish this liability, and any remaining assets may be subject to recovery.

Platform Control as a Determinative VAT Test

A central theme of the judgment concerns the degree of control exercised by the digital platform. The court identified several factors demonstrating that Sendy acted beyond the role of a facilitator:

• Setting contractual terms for delivery

• Authorising the commencement of services

• Collecting payment in its own name

• Managing customer communications

• Determining the charge payable

Taken together, these elements demonstrated active participation in the supply of transport services. The Court adopted an “economic and commercial reality” approach, concluding that the platform not individual drivers was the principal supplier. This mirrors global VAT reforms emphasising control and payment flows over contractual labels. 

VAT Withholding Obligations

By designating platforms as withholding agents, the judgment expands the scope of Kenya’s VAT regime. Withholding agents are required to:

• Deduct VAT at the point of payment,

• Remit the tax directly to KRA,

• Maintain appropriate documentation and audit trails.

This change shifts compliance upstream, ensuring tax collection at the most organised point in the transaction chain the platform operator rather than thousands of gig workers.

Implications for Platform Business Models

The ruling is likely to influence other platforms operating in Kenya, including ride-hailing, courier and e-commerce operators.

Key business model impacts include:

• Pricing Adjustments; VAT computed on the full value of the supply may increase end-user pricing unless absorbed by the platform.

• Commission Structures; Platforms may redesign commissions to mitigate VAT exposure or restructure contractual chains to support agency models.

• Cash-Flow and Reporting; Withholding obligations introduce additional monthly reporting, reconciliation, and record-keeping requirements.

Worker Classification Considerations

While the ruling does not classify drivers or couriers as employees, several jurisdictions have arrived at this conclusion on similar control indicators. For instance, the UK Supreme Court deemed Uber drivers “workers” entitled to statutory protections. Kenya’s decision does not reach this threshold, but by acknowledging platform control, it indirectly strengthens future employment-classification arguments.

Interaction with Existing Legislative Reforms

Kenya’s Finance Act 2023 broadened the definition of a “digital marketplace” to include any platform facilitating taxable supplies. The Sendy ruling judicially reinforces this policy direction. Future reforms such as Pay-As-You-Earn deductions or Social Health Insurance Fund contributions may extend to gig workers if lawmakers interpret platform control as a basis for statutory deduction obligations

Marketplace vs. Principal: A Global Trend

Internationally, regulators are shifting compliance burdens to platforms:

• The EU deems digital marketplaces as suppliers for VAT on certain B2C transactions

• OECD guidance recommends leveraging platform controls for tax collection efficiency

• Australia and New Zealand require platform income reporting for transparency

Kenya’s ruling aligns with this global movement.

Compliance Risks to Monitor

Platform operators should assess the following areas:

• Transactional Control; Greater control increases the likelihood of principal classification.

• Contractual Wording; Customer-facing terms should clearly allocate responsibilities.

• Payment Flows; Platforms collecting payments may be deemed to supply services directly.

• Documentation adequacy; Inadequate invoicing or reconciliation may trigger penalties, interest, and audits.

Impact on Gig Workers

Stronger tax positions on platforms may indirectly influence workers:

• Reduced take-home earnings if platforms pass on VAT,

• Increased reporting obligations through formalization and traceability,

• Potential integration into formal statutory deductions in the future.

While net income may reduce, formalization could improve credit access, pension visibility, and social protection.

Market Responses and Potential Restructuring

To mitigate VAT exposure, platforms may consider:

• Shift to true agency models where payment flows bypass the platform.

• Adopt hybrid fee structures. 

• Reallocation of responsibilities via updated terms and conditions.

• Enhanced invoice automation through digital compliance tools.

• Explore relocation or service segmentation if margins tighten.

Prospects for Appeal and Industry Lobbying

Given the significance of the ruling, further appeals cannot be ruled out. Industry associations might lobby for:

• A clear statutory definition of platform liability and deemed supplier rules,

• Simplified VAT reporting for gig transactions,

• Transitional guidelines to prevent retroactive assessments.

Conclusion

The High Court’s judgment signifies a pivotal moment for Kenya’s platform economy. Treating platforms as deemed suppliers where they exercise control over transaction elements strengthens the tax authority’s position and enhances revenue certainty.

This decision introduces new compliance burdens platform operators and may impact pricing strategies, contractual relationships, and workforce classification. As the platform economy evolves, Kenya’s legal and tax frameworks will continue to be tested by innovations in digital service delivery. The ruling also signals that courts, like policymakers, increasingly expect digital intermediaries to shoulder enhanced compliance responsibilities reshaping fiscal dynamics across the gig economy.

Sources: Business Daily Africa, Kenya Law