The Kenya Revenue Authority (KRA) is pursuing Sh23.1 billion in taxes arising from the 2025 sale of Tullow Oil’s Kenyan business to Auron Energy E&P Limited, an affiliate of Gulf Energy Ltd.

Appearing before the Joint Committee of Parliament on February 12, 2025, KRA officials said the assessment followed a comprehensive tax audit covering the period between 2020 and 2025.

“In 2025, the Authority carried out a tax audit on the taxpayer for the period 2020 to 2025 and raised taxes amounting to Sh23,124,656,330,” KRA told MPs.

The assessment comprises Sh4.6 billion in Capital Gains Tax, Sh18.3 billion in Value Added Tax (VAT), and Sh128.5 million in Withholding Tax. However, KRA confirmed that the taxpayer has formally objected to the assessment.

“The taxpayer has since objected to the taxes raised and the objection is currently pending review,” the Authority stated.

Tullow Kenya BV, which operated Blocks 10BB, 13T and 10BA, was a branch of Tullow Overseas Holding BV, a Netherlands-incorporated company whose ultimate parent is Tullow Oil PLC, listed on the London Stock Exchange. The firm had previously partnered with Africa Oil Kenya BV and Total Energies, both of which relinquished their stakes before 2025, leaving Tullow as the sole operator.

In 2025, Tullow Overseas Holding BV completed the sale of its entire Kenyan business to Auron Energy E&P Limited for a minimum consideration of USD120 million. According to the presentation, the deal was structured with USD40 million paid upon completion, USD40 million payable by June 2026, and a further USD40 million upon commencement of production.

The agreement also provides for quarterly royalty payments of USD0.5 per barrel multiplied by 80 percent of total production, while Tullow retains a 30 percent “back-in right” in future development phases.

KRA further disclosed that oil exploration companies have benefited from significant import tax exemptions. Tullow Kenya BV received exemptions amounting to Sh9.9 billion, Eni Kenya BV Sh1.22 billion, and Anadarko Kenya Sh1.34 billion, bringing total exemptions in the sector to Sh12.47 billion.

On transfer pricing risks, KRA assured lawmakers that strict monitoring mechanisms are in place.

“There are adequate measures to monitor and audit transfer pricing risks, particularly in relation to drilling services, logistics, procurement and inter-company management fees,” KRA stated.

The Authority emphasized that Section 18(3) of the Income Tax Act requires transactions between related parties to be conducted at arm’s length.

“KRA will continue to enforce the arm’s length principle on all transactions between related parties,” officials said.

To strengthen revenue safeguards, KRA proposed several reforms, including revocation of Legal Notice No. 91 of 2015, which exempts interest paid on foreign loans in listed sectors — including oil — from withholding tax.

“No exemption should be granted on withholding taxes for both local and imported services,” KRA told the committee.

The Authority also proposed amendments to Section 16(2)(j)(v) of the Income Tax Act and a review of the Ninth Schedule to align with modern exploration practices.

“KRA will work closely with other stakeholders to safeguard the Government’s share of revenues from future crude oil sales,” the officials said.

The presentation comes amid heightened parliamentary scrutiny over fiscal terms in Kenya’s oil sector, as lawmakers push for stronger revenue protection mechanisms ahead of commercial production.