Kenya Revenue Authority (KRA) will wait longer to know the fate of Ksh5.2 billion ($50.2) tax it demanded from Tullow Oil after the firm appealed the claims.
Appearing before the National Assembly Committee on Energy, KRA deputy commissioner in charge of policy Caxton Masudi said the British oil firm has since appealed the demands, slowing efforts to collect the taxes.
The taxman is demanding the billions from Tullow Oil for the transfer of 25 per cent of its interests in 2015 and a further 10 per cent in 2018 both in Block 12 A in South Lokichar Basin to the UK-based Delonex Energy.
He added that the taxman cannot enforce the demand since the tax appeals tribunal is yet to make a decision, which can be in favour of Tullow or the KRA.
“Since the matter is in dispute, we cannot enforce collection until the matter is resolved by an appellate body which in this case is tax appeals tribunal,” said Mr Masudi.
In its demand, the KRA said Tullow Kenya should pay value-added tax for the transfer of the oil blocks in line with the Production Sharing Contract (PSC) requirements on transfer of rights to other parties.
The taxman added that while PSC provides for the sale of interest to any other party, this does not constitute sale of business since the farmout (owner of one or more mineral leases) continues with its business.
Tullow Oil in its appeal says that “transfer of interest being taxable supply is immaterial since these companies are not registered and are exempt by law from registration’.
The battle that has now dragged on for more than a year mirrors a similar stand-off between Tullow and the Uganda Revenue Authority in 2015 over Ksh47.7 billion ($473 million) in relation to capital gains tax arising out of Tullow’s sale of its rights after it discovered oil.
Tullow agreed to pay Ksh10.9 billion ($109 million) in 2015, making a total of Ksh25.2 billion ($250 million).