Kenya is seeking KSh 23.1 billion ($179 million) in taxes from Tullow Oil following a dispute over the company’s exit from the country’s upstream sector.
The demand follows Tullow’s $120 million disposal of its Kenyan business and has opened a dispute over one of the country’s major oil transactions.
The Kenya Revenue Authority (KRA) is assessing the taxes in relation to the sale of Tullow’s interests in oil blocks located in Turkana County. The transaction was structured in three tranches of $40 million each, tied to completion, a future date and the start of production.
Tullow Oil, however, formally objected to the assessment, stating that the tax demand exceeds the minimum value of the transaction and is now under review.
The review process is expected to determine whether the full amount claimed by the revenue authority stands.
Meanwhile, the government says the KSh 23.1 billion ($179 million) claim covers the period between 2020 and 2025. It also includes KSh 18.3 billion ($142 million) in value added tax, KSh 4.6 billion ($36 million) in capital gains tax and KSh 128.5 million ($1 million) in withholding tax, Kenyan tax authorities alleged.
The dispute comes at a time when Kenya is tightening oversight of its oil and gas sector. The government is preparing for commercial production from the Turkana oil fields and is seeking to secure future petroleum revenues.
What Kenyan authorities are claiming
KRA told parliament that oil exploration firms have benefited from wide ranging import tax exemptions over the years. Tullow Kenya BV received exemptions amounting to KSh 9.9 billion ($77 million), while Eni Kenya BV received KSh 1.22 billion ($9 million) and Anadarko Kenya received KSh 1.34 billion ($10 million).
The total sector exemptions stood at KSh 12.47 billion ($97 million), according to the revenue authority. Lawmakers have raised concerns about how these incentives could affect government earnings once oil production begins.
In addition, the new field development plan for the two oil blocks provides further fiscal incentives to Gulf Energy E&P B.V., the firm acquiring Tullow’s interests. These include removal of value added tax, withholding tax on services and interest, the railway development levy and the import declaration fee for petroleum operations.
The Auditor General earlier warned parliament that expanded tax exemptions, higher cost recovery ceilings and delayed audits in Turkana oil contracts could defer or reduce the state’s share of oil income. The warning has increased scrutiny of past and current fiscal arrangements in the sector.
How Kenya plans to tighten oil tax oversight
KRA maintained that strict monitoring mechanisms have been introduced to manage transfer pricing risks in the oil industry. The authority stated that it will ensure transactions between related companies follow market prices, particularly in drilling services, logistics, procurement and inter company management fees.
To strengthen revenue collection, the authority has proposed ending exemptions on interest paid on foreign loans in sectors such as oil and gas. It also proposed removing certain withholding tax exemptions and updating rules on allowable tax deductions.
Furthermore, the authority indicated that outdated regulations will be reviewed to align with current oil exploration practices. These proposals form part of broader fiscal reforms aimed at safeguarding public revenue ahead of full scale production.
Tullow’s exit marks a turning point in Kenya’s oil journey, which has faced delays due to funding constraints and infrastructure challenges. The government is now balancing the need to attract investors with the need to secure its fiscal interests.
The outcome of the tax review will determine whether Tullow is required to settle the full KSh 23.1 billion ($179 million) claim or negotiate a revised amount. Hence, the case is likely to shape how future oil exits and asset transfers are taxed in Kenya.
