Court blocks KRA from taxing golf club membership fee

Kenya Revenue Authority (KRA) has suffered a major blow after the High Court barred it from demanding 16 per cent Value Added Tax (VAT) from golf club membership subscription and entrance fee.

Justice Nixon Sifuna dismissed the appeal by the KRA that sought to overturn a decision by the Tax Appeals Tribunal Court in 2020 which restrained it from taxing golf clubs.

KRA Commissioner for Domestic Taxes had urged the court to quash the tribunal decision to block it from demanding taxes from golf clubs located in Kiambu including Sigona Golf Club, Thika Golf Club, Ruiru Sports Club, and the Kiambu Club Limited

While dismissing the appeal, Justice Sifuna noted that although taxes are an inevitable and legitimate source of government revenue, the commissioner of taxes can not tax everything and anything.

"While this court as the tax court will facilitate legitimate collection of tax for the economy, it has at the same time, the responsibility to guard against overzealousness, greed, unfairness, and unconscionableness in tax collection. While taxes are an inevitable and a legitimate source of government revenue, we cannot tax everything and anything," the Judge ruled.

"There must be and exist, a legal and rational basis for each tax or tax stream. Hence taxation cannot be by sheer caprice or whim, for the mere sake of taxing, or for no reason at all," Justice Sifuna said in his judgment.

He emphasised that KRA cannot casually disregard legitimate expectations without consulting and involving stakeholders.

"The consolidated judgment that the Tax Appeals Tribunal delivered on  March 27, 2020, in the said appeals is hereby upheld, with the consequence that the joining fee (entrance fee) and members subscription fee of golf clubs and sports clubs are exempt from VAT," the Judge ruled.

The taxman had argued that due to the exclusivity of the clubs’ membership, there was a rational basis to charge taxes on the subscription fee.  

KRA contended that the clubs were making available golf facilities; and it is for that service that members were paying the subscription fee and entrance fee, hence making it a taxable supply.

The authority argued that clubs were purely in business and not philanthropic entities.

Between 2015 and 2016 the taxman is said to have demanded about Sh40 million in taxes from the four clubs.

The clubs opposed the appeal arguing that KRA has absolutely no legal or factual basis for charging VAT on club entrance and subscription fees.

They informed the court that the services offered to members are meant to ensure they actualise their hobbies and engage in various leisure activities.

"The mere fact of requiring members to pay subscription fees does not turn the clubs into business entities or organisations undertaking their activities as a business," the clubs said.

Further, they argued that the subscription fee is paid periodically for members to continue enjoying certain rights and privileges as well as facilities and services in the clubs.

Golf and sports clubs were exempted from VAT on membership and entrance fees until 2017 when the KRA sent them tax demand notices.