New tax on oil companies clouds KenolKobil-Puma deal
A man fuelling a car. Tax experts said the new tax would affect deals involving oil marketers’ shares. Photo/File
What you need to know:
KenolKobil’s transaction advisers insist the 20 per cent tax introduced in the Finance Act 2012 would only apply at the exploration stage.
The legislation came into effect on February 20.
Experts said the new tax would affect deals involving oil marketers’ shares unless the government expressly exempts them from the levy.
The withholding tax on transfer of shares in the oil and mining industry has created uncertainty on the ongoing transaction between KenolKobil and Puma Energy, with experts’ opinion split on whether the levy would be applied on the deal.
KenolKobil’s transaction advisers in the Sh25 billion deal Kestrel Capital insist that the 20 per cent tax on assignment of rights, sale of business or takeovers introduced in the Finance Act 2012 would only apply at the exploration stage.
Tax experts at Deloitte and analysts at Standard Investment Bank, however, say the law is ambiguous and could be interpreted as being applicable in the KenolKobil-Puma deal, which is still under negotiation by the two parties.
“The way it is drafted leaves a lot of ambiguity, and it is unclear on who is to be included in the tax. I don’t think the tax was meant to include the oil marketers, but it is important to remember that it was brought about by desperation by the government to raise funds,” said Mr Nikhil Hira, a partner and tax consultant at Deloitte.
The Kenya Revenue Authority (KRA) did not respond to our queries on the matter.
Another issue that the KRA will be expected to address is whether the tax will also be applicable to transactions done at the stock market.
Tax experts said the new tax would affect deals involving oil marketers’ shares unless the government expressly exempts them from the levy. The legislation came into effect on February 20.
Mr Kuria Kamau, a financial analyst at Kestrel Capital said they are yet to get a clarification from taxman on the matter.
“This tax is mostly to do with the companies involved in extraction of oil, but we have not yet been told whether the same will apply to this deal. At the moment the deal is going on,” said Mr Kamau.
Mr Hira drew parallels between the new withholding tax and amendment to the Customs and Excise Act which imposed a 10 per cent excise duty on ‘other fees’ charged by banks, which was not defined in law.
Financial institutions moved to court seeking an injunction to stop the levy. He sees a possibility of oil marketers following suit were the withholding tax to affect them.
“This tax and the excise on the banks have not been well thought out, as they raise more questions,” said Mr Hira. “The banks managed to get a stay order against payment of the 10 per cent excise as there was no definition of the fees the ministry had to approve before the increase.”
The Association of Kenya Bankers got the High Court injunction stopping KRA from collecting the duty last week.
