In Kenya’s evolving financial landscape, the VAT treatment of repossessed goods is becoming an increasingly important issue. As asset-backed credit gains traction, particularly in motor vehicle finance, equipment leasing, and consumer lending, questions are emerging on how VAT should apply when lenders recover and resell financed goods after borrower default.

At the heart of the debate lies a distinction between the provision of credit, which is VAT-exempt under Kenyan law, and the resale of repossessed assets. Historically, lenders have viewed repossession and resale as part of the broader credit process. However, in recent years, the Kenya Revenue Authority (KRA) has increasingly taken the view that such resales constitute taxable supplies, requiring financiers to charge and remit VAT on the proceeds.

This position has introduced a layer of complexity for secured lenders. Typically, in an asset finance arrangement, the financier retains a security interest, not ownership, over the financed goods. When a borrower defaults, the asset is repossessed and resold purely to recover outstanding amounts. Many stakeholders argue that such recovery actions are not equivalent to ordinary commercial transactions, and that treating them as taxable supplies adds compliance burdens and costs.