KRA loses bid to attach Africa Oil accounts in Sh2.5 billion tax row

A judge has stopped Kenya Revenue Authority (KRA) from attaching the accounts of Canadian oil and gas firm, Africa Oil Kenya BV, over a tax demand amounting to Sh2.9 billion.

In a ruling, Justice David Majanja said the commissioner of domestic taxes ignored a directive of the Tax Appeal Tribunal, by failing to review the amount being demanded, by excluding some assessments for 2011 and 2012.

Although the oil company was ready to pay Sh10 million as security, pending the determination of the appeal, Justice Majanja went ahead and stopped the demand, saying the decision was incapable of being enforced until the KRA complies with the judgment.

“I, therefore, find that the commissioner lacked a legal basis to issue an agency notice on the basis of the tribunal judgment. It, therefore, follows that I cannot order the appellant to provide security where the tax liability has not been determined as directed by the tribunal,” the judge said.

The company rushed to court seeking to stop the taxman from demanding Sh2,293,334,065, arising from VAT on farm-out transactions between 2011-2016.

In a judgment on March 27, the Tax Appeals Tribunal ruled in favour of KRA but directed the taxman to exclude assessment for 2011 and 2012.

A few days later, the KRA issued agency notices to the oil company’s bank at Citibank demanding Sh2,293,334,065 on account of VAT owed.

But the company, through its director Mark Dingley, said it was ready and willing to offer security but submitted that the court should consider several factors in making the order.

According to Mr Dingley, the company does not generate revenue as it is in the oil exploration and appraisal stage.

He added that the company’s financial position had deteriorated to a current working capital deficit of $226,822,164 and a cash deficit of $2,871,657 as per the draft financial statements for December 2019.

Mr Dingley further said the firm’s monthly running costs average about Sh20 million ($200,000) hence order for security for any sum above Sh10 million ($100,000) would jeopardise its operation including office running costs and payment of employees’ salaries.

Further, he urged the court to take into account the state of the global oil industry due to a decline in oil prices as a result of the Covid-19 pandemic, which has affected its ability to raise funds.