Blow to KRA as lay-offs cut Tullow’s tax burden by 90pc

Massive lay-offs by Tullow Oil Kenya over the last three years have resulted in a major drop in the taxes that the oil company pays to the Government.

The amount of Pay as You Earn (PAYE) taxes that the firm paid to the Kenya Revenue Authority (KRA) declined by 90 per cent over the 2018/19 financial year to Sh111 million from Sh1.42 billion paid over the previous financial year. Between 2017 and last year, the exploration firm reduced its workforce by 50 per cent, which it said was necessary after the end of a resource and labour intensive phase.

This as it transitioned into a new phase that required different skill sets of preparing the Lokichar oil fields in Turkana for commercial production.

The company’s withholding tax also declined to Sh55 million in the last financial year from Sh172 million in the year to June 2018. The decline is an indication that the company had slowed down engagements with contractors.

“There was scaling down of operations as they awaited the implementation of the Early Oil Pilot Scheme which has already started…. In the recent past, it has started picking up,” said Caxton Masudi, deputy commissioner, policy and tax advisory at KRA. Tullow, which was incorporated in Kenya in 2010, paid Sh12.29 billion in PAYE and withholding tax.

KRA is, however, demanding Sh5.2 billing from the oil company in Value Added Tax (VAT) it ought to have paid following the sale of its 25 per cent interest in Block 12A to India’s Delonex Energy in 2015 and a further 10 per cent last year.

Tullow has disputed the tax demand, with a case on the same currently ongoing at the tax appeals tribunal.

The block in Elgeyo Marakwet County is now 60 per cent owned by Delonex Energy. Preliminary exploration by Tullow in 2016 showed the block has the potential to become a key oil block, terming it the “most significant well result to date outside the South Lokichar basin”.