The Kenya Revenue Authority (KRA) is seeking KSh23.1 billion in taxes from Tullow Oil following the company’s US$120 million sale of its Kenyan business, escalating a dispute over one of the country’s most consequential oil exit transactions.
- •The assessment, covering the period between 2020 and 2025, comprises KSh 18.3 billion in value-added tax, KSh 4.6 billion in capital gains tax, and KSh 128.5 million in withholding tax.
- •Tullow Oil has formally objected to the assessment claiming it exceeds the minimum value of the transaction and is now under review.
- •The transaction was structured with payments of US$40 million at completion, US$40 million due by June 2026, and US$40 million payable upon the start of production.
The tax dispute emerges as Kenya moves to tighten fiscal oversight of its oil sector amid concerns about preserving future petroleum revenues. The Auditor-General has warned Parliament that expanded tax exemptions, higher cost-recovery ceilings, and delayed audits in Turkana oil contracts could defer or reduce the government’s share of earnings once production begins.
KRA told parliament that oil exploration companies have benefited from significant import tax exemptions. Tullow Kenya BV received exemptions amounting to KSh9.9 billion, Eni Kenya BV KSh 1.22 billion, and Anadarko Kenya KSh1.34 billion, bringing total sector exemptions to KSh 12.47 billion.
According to the new field development plan of the two oil blocks, Gulf Energy E&P B.V. will enjoy a slate of incentives including removing value-added tax, withholding tax on services and interest, the Railway Development Levy, and the Import Declaration Fee for petroleum operations.
The revenue authority maintained that strict monitoring mechanisms have been put in place to manage transfer pricing risks, particularly regarding drilling services, logistics, procurement, and inter-company management fees. It added that it will make sure all deals between related companies are fair and follow normal market prices.
To strengthen revenue collection, KRA proposed ending exemptions on interest paid on foreign loans in sectors such as oil. It also suggested removing other withholding tax exemptions, updating rules on certain tax deductions, and reviewing outdated regulations to reflect current oil exploration practices.
