Assessment of tax incentives for contractors in Kenya’s upstream oil and gas legislative framework
Ahmed, Mohamed Bulle
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Tax and tax related incentives applicable in Kenya’s upstream oil and gas sector are defined in two main statutes: The Income Tax Act and the Petroleum Act, 2019. Since 2010, Kenya’s taxation regime has undergone numerous developments and of key relevance to this study is the introduction of a separate schedule to the Income Tax Act on taxation of the extractive industry in 2014. The Ninth Schedule separates the taxation treatment of mining and petroleum operations from other sectors of the economy. The incentives provided for under the Ninth Schedule to ITA can be placed into three categories namely: income tax deductions; custom duty exemptions; and value added tax exemptions. This thesis critically analyses the tax incentives available for international oil companies in the Kenyan law. It identifies the gaps and inconsistencies in the provisions for tax incentives under the Ninth Schedule to the Income Tax Act and the model Production Sharing Contract (PSC) under the Petroleum Act, 2019. The research methodology used is qualitative research design, utilizing primary and secondary sources of data. It involves review of the legal framework for taxation in the oil and gas sector. Literature materials reviewed included books, journal articles, theses, online sources; as well as statutes, rules and regulations governing taxation in the oil and gas sector. Literature materials analyzed apply to the Kenyan context as well as other jurisdictions such as Ghana and Nigeria. Kenyan literature especially touching on or analyzing the incentives under the fairly recent laws was found to be scanty as few authors have written about them. The findings of the research are that there are inconsistencies, overlaps and gaps in the Ninth Schedule to the Kenya Income Tax Act (KITA) and the model Production Sharing Contract (PSC) relating to tax and tax-related incentives in the upstream oil and gas sector. The inconsistencies, overlaps and lack of clarity in effect tend to blur the incentives intended to attract International Oil Companies (IOCs). Ghana and Nigeria have made commendable efforts to establish and impendent tax incentives for IOCs in their oil and gas sector, and few lessons can be drawn from them. The study makes appropriate recommendations on how Kenya can address the challenges identified.