- Cars and other assets seized by banks for loan defaults will be subjected to Value Added Tax.
- The Tax Appeals Tribunal ruled that VAT is chargeable on the disposal of seized assets, including the sale of motor vehicles through auction by banks recovering bad debts.
- KCB Kenya challenged the applicability of VAT on such transactions, arguing that the process was part of credit recovery and not intended for profit-making.
- The Tribunal dismissed KCB’s appeal against the Kenya Revenue Authority (KRA) over a disputed VAT assessment amounting to Sh1.2 billion.
- KCB argued that VAT should not apply to the disposal of seized assets because the auction process is intrinsically linked to the provision of credit facilities, which is a VAT-exempt service.
- The bank contended that the seizure and auction of vehicles are part of its risk mitigation strategy in granting loans and do not constitute a profit-making activity.
- KRA maintained that the primary supply in the transaction was the sale of motor vehicles to third parties by KCB, a VAT-registered entity.
- The Tribunal held that there exists no provision under the VAT Act that exempts sales by auction in recovery of credit from VAT.
- KRA argued that the VAT Act does not provide an exemption for such sales, making them taxable.
- KRA maintained that the bank, as a creditor, had stepped into the shoes of the debtor during the auction process and was therefore obligated to discharge all tax liabilities, including VAT.
Source: the-star.co.ke
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
