Paragraph 8, Part II of the First Schedule to the VAT Act exempts from VAT the supply by way of sale, renting, leasing, hiring, letting of residential premises, on the other hand, supplies related to hotels and commercial properties, including serviced apartments, are subject to VAT at the rate of 16%.

Avic International Real Estate engages in the development of both residential and commercial properties. The dispute in this case centered on the apportionment of the development between residential and commercial properties. Specifically, it was a matter of determining what percentage of the development constituted commercial property (taxable) and what percentage constituted residential property (exempt). This apportionment was necessary to determine the amount of VAT that Avic could claim back. 

Facts of the Case 

The Appellant, Avic International Real Estate (K) Ltd ("Avic Real Estate"), is the developer of a mixed-use project located in Westlands, Nairobi, consisting of both commercial and residential properties. 

Initially, Avic planned the entire development as a commercial project. However, due to changing market dynamics, including ...