Kenya’s taxman and a Canadian oil firm are locked in a fight over $52 million Turkana oil's bill

Kenya’s taxman is locked in a Sh5.2 billion ($52million) dispute with Africa Oil, the Canadian firm involved in exploration of Turkana oil fields in a joint venture with British firm Tullow.
KRA is demanding the amount in the form of corporate income tax and value added tax that it says Africa Oil should have paid on acquisition transactions completed in the five-year period between 2012 and 2017.

Even before the Kenya’s first oil barrel has been exported out of the country, Kenya Revenue Authority (KRA) and a Canadian firm are already fighting over Turkana oil millions.

Kenya’s taxman is locked in a Sh5.2 billion ($52million) dispute with Africa Oil, the Canadian firm involved in exploration of Turkana oil fields in a joint venture with British firm Tullow.

KRA is demanding the amount in the form of corporate income tax and value added tax that it says Africa Oil should have paid on acquisition transactions completed in the five-year period between 2012 and 2017.

“The company’s Kenyan branch, of its wholly owned subsidiary, Africa Oil Kenya B.V., has been assessed corporate income tax and value added tax by the Kenya Revenue Authority relating to farm-out transactions completed during the period 2012 to 2017. …The KRA-assessed tax is $51.5 million,” says Africa Oil in its latest regulatory filing.

It is not clear whether the transaction refers to the Global conglomerate Maersk Oil’s acquisition of a 25 per cent stake of the Turkana exploration licences since the firm did not provide details of the KRA’s tax demand.

Africa Oil received $427 million or Sh44 billion from Maersk.

Also read: Tullow invite bids for drilling 300 oil wells in Turkana as it mulls over its operations in Kenya

The firm claims its objection to the claim was based on facts and the Kenyan tax law.

“The company has objected to the assessment and is prepared to appeal any further claims made by the KRA in regard to this matter. Management has determined that based on the facts and Kenya tax law that the probability of paying the assessed tax is low,” the company says.

The current dispute with the KRA could be a pointer of things to come once the Turkana oil starts flowing to the international markets.

The Kenyan government has expressed concerns over the accounting for exploration costs, which the multinational firms currently engaged in the Turkana fields will be seeking to recover.

The Ministry of Energy in 2016 sought a consultant to audit Tullow’s expenses, which by the time had hit more than Sh100 billion.

The auditor was expected to come up with details on costs that the company and its partner, Africa Oil had incurred in finding the Turkana oil deposits.

However, the Kenyan government found it difficult to get a specialist in auditing oil exploration-related costs even as it remained sceptical of the financial reports that they continued to receive from the oil companies.

Charities including British charity Oxfam have expressed fear that oil firms operating in Africa could be tempted to overstate the costs in order to get as much benefit as possible from their operations, thereby denying local people and the authorities the revenues they deserved to get.