The High Court has dismissed a Sh943.14 million tax claim by the Kenya Revenue Authority (KRA) against oil marketer Libya Oil Kenya (now Ola Kenya), ruling that it lacks legal basis. Judge Josephine Mongare stated that the tax demand on product gains from petroleum import products by Libya Oil was invalid because there is no provision for such taxation in the law.
Product gains and losses, which refer to differences in deliveries and receipts of petroleum products, were at the center of the dispute. The court found that while both parties acknowledged the existence of product gains, there was no legal framework to support taxing these gains. This ruling underscores the importance of clear legal provisions in taxation matters.
The disagreement between KRA and the oil marketer began with a transfer pricing review conducted by the tax authority for the years 2012 to 2014. Following preliminary audit findings, Libya Oil received a notice of tax assessment covering the years 2010 to 2016. However, a partial settlement was reached, leading to the submission of the principal tax assessment on product gains to the Tax Appeals Tribunal for resolution.
Despite the Tribunal’s ruling in favor of Libya Oil, KRA filed an appeal, arguing that the tribunal misinterpreted the law and failed to recognize the distinction between customs entry and clearance. However, Justice Mongare emphasized that KRA’s failure to cite the specific law supporting the taxation of product gains undermined its case.
This decision highlights the importance of legal clarity and adherence to statutory provisions in tax matters, providing clarity and guidance for businesses operating in Kenya’s oil and gas sector.
