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VAT on Auction Sales for Debt Recovery Now Mandatory in Kenya. In a pivotal decision, Kenya’s Tax Appeals Tribunal (TAT) has ruled that auction sales conducted for debt recovery purposes are subject to Value Added Tax (VAT).
This judgment arose from a dispute between Kenya Commercial Bank (KCB) and the Kenya Revenue Authority (KRA), where KCB contested the imposition of VAT on commercial vehicles sold through auctions between 2018 and 2022.
KCB’s Position
KCB contended that the auctioned sales were not profit-driven but aimed at recouping defaulted loans. The bank argued that these transactions should be exempt from VAT, aligning them with provisions that exclude loan amounts from such taxation.
KRA’s Argument
The KRA maintained that since KCB was co-registered on the vehicle titles and subsequently sold them to third parties, these transactions constituted taxable supplies under the VAT Act.
The authority emphasized that the VAT Act does not explicitly exempt such sales, rendering them taxable.
Tribunal’s Decision
The TAT concluded that the disposal of seized goods through auction is not inherently part of providing credit facilities.
The tribunal stated that interpreting the VAT Act to exempt such transactions would extend its provisions beyond the legislature’s intent.
Implications of the Ruling
This decision clarifies that current legislation does not exempt lenders from paying VAT during debt recovery processes.
Consequently, financial institutions may face increased tax obligations when recovering loans, potentially leading to higher costs for debtors and influencing auction pricing strategies.
This ruling underscores the importance for lenders to reassess their tax compliance frameworks concerning asset disposals and to anticipate potential adjustments in their financial recovery procedures.
