Case Reference:Bboxx Capital Kenya Ltd v Commissioner of Legal and Board Services (Appeal E1164 of 2025) [2026] KETAT 270 (KLR) (27 July 2026) (Judgment)
FACTUAL BACKGROUND
Bboxx Capital Kenya Limited supplies solar home systems to Kenyan households on “pay plan” arrangements, allowing customers to pay in manageable instalments over several years. In November 2023, the Kenya Revenue Authority audited its tax affairs for 2018 to 2022.
On 29th June 2025, the Commissioner issued an assessment demanding a staggering Kshs. 780,173,126.25 for Corporation Tax for the year 2019. The assessment arose from two adjustments. First, the Commissioner treated Bboxx’s lease stock as credit sales and applied a 30% margin, computing under-declared sales of Kshs. 1,534,762,601.00. Second, the Commissioner added back a hire purchase asset write-off of Kshs. 33,747,809.00 as a non-deductible expense.
Bboxx lodged an objection on 28th July 2025, but the Commissioner rejected it on 18th September 2025.
THE APPEAL
Bboxx appealed to the Tax Appeals Tribunal, arguing that the Commissioner misclassified its finance lease business model as a hire purchase arrangement and arbitrarily applied a 30% mark-up to the lease stock. The Appellant relied on its contractual terms, which provided that the system would remain the property of Bboxx throughout the pay plan, and that risk of loss passed to the client upon delivery.
The Respondent, however, pointed to Bboxx’s own audited financial statements, which explicitly declared that the company had no leases classified under finance leases. The statements described the business in terms of “hire purchase sales” and declared sales as cash sales and hire purchase sales. The Commissioner further noted that terms like “pay plan,” “purchase price,” “down payment,” and “final payment” demonstrated an intention to transfer ownership.
THE TRIBUNAL’S DETERMINATION
Issue A: Business Model Classification
The Tribunal examined the definitions under the Income Tax (Leasing) Rules, 2002, and found that the distinguishing feature between a finance lease and a hire purchase is the intention to transfer ownership. The Tribunal held that Bboxx’s audited financial statements were decisive—Note 29 explicitly stated no finance leases, and the statements described the business as hire purchase sales. The Tribunal concluded that Bboxx’s business model constituted a hire purchase arrangement, not a finance lease.
Issue A (Continued): The 30% Margin
However, the Tribunal found the assessment methodology fundamentally flawed. The 30% margin applied by the Respondent was unexplained anywhere on the record—no provenance was provided. The Tribunal quoted the High Court in Republic v Commissioner of Domestic Taxes Ex Parte Barclays Bank of Kenya Limited, stating that the Commissioner cannot exercise its duty like a trawler casting its net wide.
The Tribunal further found the adjustment resulted in double counting, as deemed credit sales were superimposed on declared revenue already recognised and taxed. The Appellant had placed before the Tribunal reconciliations, ledgers, and movement schedules demonstrating its treatment of the lease stock. The Respondent tendered nothing in rebuttal.
The Tribunal found that the Respondent’s assessment was arbitrary and without a demonstrated factual foundation.
Issue B: The Hire Purchase Asset Write-Off
On the second issue, the Tribunal found that the written-off assets had a historical cost of Kshs. 33,747,809.00 and accumulated depreciation of an equivalent amount, leaving a nil net book value. Their derecognition passed no charge through the profit and loss account. An add-back untethered to a deduction is an adjustment resting on nothing.
Applying the principles from Man Diesel & Turbo Se and Ennus Company Limited, the Tribunal found that the Appellant had made out a prima facie case through its audited financial statements, and the Respondent did not controvert this evidence. The Tribunal found that the Respondent’s add-back was without legal or factual foundation.
FINAL DECISION
The Tribunal made the following orders:
- The Appeal was allowed.
- The Respondent’s Objection Decision dated 18th September 2025 was set aside.
- Each party was to bear its own costs.
PRACTICAL IMPLICATIONS FOR TAXPAYERS AND PRACTITIONERS
1. Your Own Records Can Be Your Undoing
The Tribunal placed decisive weight on Bboxx’s own audited financial statements. When your financial statements describe your business as “hire purchase sales,” it is extremely difficult to argue otherwise. Your contemporaneous records are evidence of the character of your transactions.
2. Business Classification Matters
The distinction between a finance lease and a hire purchase arrangement has significant tax implications. Under a finance lease, the lessor capitalises the asset and claims wear and tear. Under a hire purchase, the hirer claims the deductions. Getting this classification wrong can expose you to significant tax liabilities.
3. The Commissioner Must Justify Its Calculations
Even where the Commissioner correctly identifies a taxpayer’s business model, the Commissioner cannot arbitrarily determine the amount of tax due. A tax assessment must be grounded in verifiable evidence and supported by a transparent methodology. An unexplained 30% margin will not pass muster before the Tribunal.
4. Double Counting Is Unlawful
The Tribunal firmly rejected the Commissioner’s attempt to superimpose deemed credit sales on declared revenue without eliminating amounts already recognised and taxed. Tax assessments that result in double counting violate the constitutional principle of fairness under Article 201(b)(i).
CONCLUSION
The Bboxx case is a significant victory for taxpayers. The Tribunal agreed with the Commissioner that Bboxx was operating a hire purchase business, but annihilated the assessment because the Commissioner’s calculation was arbitrary, unexplained, and resulted in double counting.
The case reminds us that in tax disputes, the battle is fought on two fronts: the law and the facts. Even if the taxman is right about the rules, he must play by them too. A tax assessment cannot be built on guesswork.
