KRA withdraws Sh1.3 billion tax demand against Tullow Oil

A worker walks at a Tullow Oil explorational drilling site in Lokichar, Turkana County, Kenya, February 8, 2018. [Reuters, Baz Ratner]

Kenya Revenue Authority has withdrawn a case in which it was seeking Sh1.32 billion from Tullow Oil in taxes after the company sold an oil block in Kerio Valley in 2015.

The taxman in March 2019 demanded $11.7 million (Sh1.32 billion at current exchange rates) as value-added tax (VAT) from Tullow after the sale of block 12A to Delonex Energy.

Tullow then resisted KRA’s attempts to have it pay the money, arguing that it had not been VAT registered at the time of the sale and that the transaction was a sale of a capital asset.

KRA said the transaction constituted a supply of taxable services at the standard rate of 16 per cent. Its position was that oil exploration blocks are held as current assets.

The matter was heard by the Tax Appeals Tribunal (TAT), which on April 30, 2021, set aside KRA’s VAT assessment. KRA appealed the ruling but shortly withdrew it, handing the oil firm a victory. “KRA subsequently appealed the decision of the TAT to the High Court, but they withdrew that appeal on July 19, 2021. This matter can now be treated as closed,” said Tullow in its annual results published in March 9, this year.

Preliminary exploration of the block by Tullow in 2016 - it still held a majority stake and was in charge of the day to day operations of the block - showed it had the potential to become a key oil block. After drilling the Cheptuket-1 well, the firm said it encountered oil shows as well as the presence of an active petroleum system with significant oil generation.

Tullow termed the find the “most significant well result to date in Kenya outside the South Lokichar basin”. The entire block has since then been acquired by Delonex Energy.

In its annual results, Tullow Oil said it is still searching for a strategic partner for Project Oil Kenya. The partner is expected to play a critical role in moving the project forward.

The company towards the end of last year submitted a draft field development plan, which maps out how the companies will execute the project’s commercial phase.

Tullow said moving the project forward heavily depended on its efforts – together with its joint venture partners Total and Africa Oil – to find a partner as well as government approvals, including of the FDP.