Sendy, a Kenyan logistics startup that entered administration in 2023, has become the focal point of a pivotal legal ruling with the potential to transform taxation practices within Kenya’s gig economy.
On October 23, the High Court issued a landmark judgment mandating Sendy to remit KES 82.2 million ($635,000) in value-added tax (VAT) to the Kenya Revenue Authority (KRA). The court concluded that Sendy was not merely a digital platform linking customers to drivers but functioned as a direct service provider.
Justice Helene R. Namisi emphasized that Sendy “exerts significant control over the core components of the delivery service,” highlighting that the company establishes terms, authorizes deliveries, and collects payments under its own name. This, she explained, means that for VAT purposes, Sendy effectively procures transport services from independent drivers and supplies them to customers.
This ruling reversed a previous decision by the Tax Appeals Tribunal, which had accepted Sendy’s claim that it was only a platform provider liable for VAT on its commission fees. The High Court criticized the tribunal for overlooking the practical business operations of Sendy, stating it “erred in law.”
Currently, Sendy remains under administration, with the receiver manager still finalizing the process. The KRA may consider seizing and auctioning unsold company assets to recover debts. Attempts to reach the administrator for comment were unsuccessful.
KRA’s Expanding Focus on Digital Platforms
The ramifications of this ruling extend well beyond Sendy. By recognizing the company as the principal party in its transactions, the court has empowered the KRA to intensify scrutiny of other digital platforms that manage payments and control critical elements of their service ecosystems.
This could impact ride-hailing companies like Uber, Bolt, and Little Cab, as well as food delivery services such as Glovo, and e-commerce platforms including Jumia and Kilimall. These businesses have traditionally positioned themselves as “technology companies” rather than direct service providers.
Following this judgment, VAT would be applicable to the full amount customers pay through these platforms, not just the commission or service fees. This interpretation could lead to increased operational costs for these digital enterprises.
The decision arrives amid rapid growth in Kenya’s digital economy. The United Nations Conference on Trade and Development projects e-commerce revenues to hit KES 145.8 billion ($900 million) this year, with over 12 million active users nationwide.