Is Service Charge Taxable in Kenya? What the Nextgen Mall Tribunal Ruling Means

Updated 31 October 2026

Service charge collected by a property management company purely on behalf of owners is not taxable income and does not attract VAT, the Tax Appeals Tribunal ruled on July 27, 2026, in Nextgen Mall Management Company Ltd v Commissioner of Legal and Board Services ([2026] KETAT 264). The decision gives estates, apartment blocks and office parks a clear precedent on service charge tax in Kenya, though it has limits that managers need to understand.

Updated October 2026. General information only; get tax advice for your own situation.

The case in brief

Nextgen Mall Management Company manages common areas at Nextgen Mall on Mombasa Road, Nairobi, for unit owners. After an audit, KRA demanded KSh119.8 million: KSh38.5 million in income tax for 2016–2020 and KSh81.3 million in VAT for 2017–2020. KRA argued the service charges were business income from providing services, and that the company should be registered for VAT because its “supplies” exceeded the KSh5 million VAT threshold.

The company argued it simply collects owners’ money and pays third-party providers for security, cleaning, garbage collection, utilities and repairs. The dispute ran from September 2022, through the High Court in 2024, and back to the Tribunal, as reported by Business Daily.

What the Tribunal decided

Income tax: not income

The Tribunal held that service charge collections were “fiduciary pass-through funds” held for the unit owners. In its words, the company “is a conduit through which the owners pool and disburse their own monies; it renders no service on its own account, adds no margin, and retains nothing as a fee.” Money that is not earned or kept is not taxable income.

VAT: not a taxable supply

The actual services were supplied by independent property managers and contractors who had already charged VAT. Taxing the service charge again would tax the same services twice. The Tribunal also set aside KRA’s forced VAT registration of the company.

What can still be taxed

The company’s own commercial income, such as kiosk and market stall rentals, remains taxable.

What it means for estates and management companies

• Structure matters. The ruling protects owner-run management companies that pass money straight through. A property manager that charges its own fee or margin is supplying a service, and that fee is taxable in the normal way.
• Keep clean books. Separate service charge accounts from any commercial income, and keep invoices from service providers showing VAT charged.
• Document the arrangement. The owners’ agreement or articles should show the company acts for owners and keeps no profit from service charges.
• It is a Tribunal ruling. KRA can appeal to the High Court, and each case turns on its facts.

What it means for tenants and owners

For apartment owners and tenants, the ruling reduces the risk that service charges rise to cover VAT and income tax claims against the management company. Landlords still owe tax on rent; see rental income tax in Kenya and, for short stays, Airbnb tax in Kenya. If you are buying into a managed development, ask for the management company’s accounts and how service charges are handled; our mortgage guide covers other checks before buying.

Related: KRA’s VAT approach

The decision is one of several in 2026 where the Tribunal required KRA to prove its case with evidence. In a separate ruling, it held that KRA cannot deny input VAT just because a supplier is labelled a “missing trader”; see KRA missing trader rules.

FAQ

Is service charge subject to VAT in Kenya?

Under the Nextgen Mall ruling, pass-through service charges collected for owners are not a taxable supply where third-party providers already charged VAT. Fees a manager keeps for its own services are taxable.

Do management companies pay income tax on service charge?

Not on pure pass-through collections that the company does not earn or retain, according to the Tribunal. Other income, such as rentals, is taxable.

Can KRA appeal the decision?

Yes. Tax Appeals Tribunal decisions can be appealed to the High Court.

Related: VAT Registration in Kenya 2026: Requirements, KSh5m Threshold and iTax Steps

Related: KRA checking over one million landlords' rental income declarations