Fuel saga probe: KRA defends Ksh.5B tax refund to oil marketers as Senators demand answers

The authority also disclosed that the government’s decision to reduce VAT on fuel from 16 per cent to 8 per cent has so far cost the Exchequer about Ksh.9.1 billion in foregone revenue.

The taxman appeared before the Senate Energy Committee to explain its role in a fuel importation saga that has raised questions over the movement of millions of litres of petrol brought into the country by One Petroleum.

According to KRA, One Petroleum imported more than 66 million litres of petrol aboard MT Paloma. The vessel was one of three cargoes that together delivered over 159 million litres of fuel into the country between February and April this year.

The authority said taxes were duly paid upon arrival of the cargo, but the situation changed after the Ministry of Energy directed that the shipment be diverted to regional markets instead of being released for local consumption.

Bernard Kibiti, Manager of Petroleum Monitoring at KRA, explained that oil marketers had already paid taxes on the cargo, but did not take delivery through the Kenya Pipeline Company (KPC) system.

“The 66 million litres was allocated to different marketers and they paid the tax, but they did not access the product from the KPC system. Then they were told that that product should go back. Meaning you have paid money, about Ksh.5 billion, but you have not taken the product," Kibiti stated. 

"Meaning what happens is that I have to give you back your money. And the product that was transferred to you has to go back to the original exporter. The original importer then has to look for another market outside Kenya and take their product there."

However, the explanation drew scrutiny from senators, who questioned whether the fuel could have entered the local market before the change of destination and whether taxpayers might end up refunding taxes on fuel that had already been consumed.

“You want to take our money to go and pay people who did not lose anything,” said Kakamega Senator Boni Khalwale.

KRA maintained that the refund will be issued to oil marketing companies, insisting that the product did not enter the local market and that the process is supported by customs records showing the fuel was reclassified as transit cargo.

Dr. Lilian Nyawanda, Commissioner of Customs and Border Control, said the ministry’s directive required a reallocation of cargo and fresh declarations for subsequent consignments.

“What the ministry directed was that, for each… based on the different oil marketers, subsequently, there were more vessels coming in, so these subsequent vessels you match an oil marketer based on their parcel or portion to a new declaration. So they were going to do a fresh entry and then you do a transfer. Allocate this credit to a fresh entry,” she said.

KRA further used the session to highlight the impact of fuel tax relief measures, noting that the reduction of VAT from 16 per cent to 8 per cent has so far cost the government approximately Ksh.9.1 billion in revenue.

The disclosures come amid a wider Senate inquiry into the handling of the fuel cargo and whether all procedures were followed after the shipment’s destination was changed.

As the Senate continues its investigations into the controversial fuel importation, KRA has distanced itself from the controversy, maintaining that its role is limited to customs clearance and tax collection.