The Kenya Revenue Authority (KRA) has raised a tax demand of Sh23.1 billion following the sale of Tullow Oil Kenya BV to Auron Energy E&P Limited, an affiliate of Gulf Energy Ltd.
Appearing before a Joint Energy Committee of Parliament, Weldon Ng'eno, Commissioner for Large and Medium Taxpayers at KRA, detailed the tax assessment arising from the 2025 transaction in which Tullow Overseas Holding BV sold its entire Kenyan business for a minimum consideration of USD 120 million.
Ngeno told the lawmakers that the tax audit covering the period 2020 to 2025 resulted in assessed liabilities of Sh4.6 billion in Capital Gains Tax, Sh18.3 billion in Value Added Tax (VAT), and Sh128.5 million in Withholding Tax, bringing the total to over Sh23.1B, the taxpayer has objected to the assessment, and the matter is currently under review.
"Capital gains tax, which is Sh4.6 billion, whereby the VAT is Sh18.3 billion, Withholding Taxes of Sh128.5 million, totalling taxes of Sh23,124,656,330," Ng'eno said.
He told the MPs that Tullow Kenya BV, a branch of Tullow Overseas Holding BV incorporated in the Netherlands, was the operator of oil exploration Blocks 10BB, 13T, and 10BA. Its ultimate parent company is Tullow Oil PLC, incorporated in the United Kingdom and listed on the London Stock Exchange.
The KRA commissioner revealed that the sale agreement with Auron Energy E&P Limited was structured in three tranches of USD 40 million each, paid upon completion by June 2026, and upon commencement of production.
By 2025, Tullow had become the sole operator of the blocks after joint venture partners Africa Oil BV and Total Energies BV relinquished their stakes in 2023 and 2020, respectively.
On intercompany financing, KRA noted that Legal Notice No. 91 of 2015 exempts interest paid on foreign loans in listed sectors, including oil, from taxation.
However, the Authority has proposed revoking the notice and amending Section 16(2)(j)(v) of the Income Tax Act to curb revenue losses, which basically restricts the amount of interest a company can deduct for tax purposes to prevent tax avoidance through excessive debt.
Ng'eno said on the transfer pricing risks, KRA has established a specialized transfer pricing unit and continues to enforce arm’s length pricing under Section 18(3) of the Income Tax Act.
"There are adequate measures in place to monitor and audit transfer pricing risks, particularly in relation to drilling services, logistics, procurement, inter-company management fees, and contractor-affiliated service providers," Ngeno said.
He added that KRA has proposals to mitigate revenue risks in the petroleum sector and they are reviewing the Ninth Schedule of the Income Tax Act, removing withholding tax exemptions on both local and imported services.
"We have put proposals to mitigate revenue risks to review of the Ninth Schedule to align with modern practices in the exploration sector, and as well No exemption should be granted on withholding taxes for both local and imported services,’’ he said.
"KRA will work closely with other stakeholders in the collection of the Government’s share of sales of future crude oil."
