A lengthy process is underway at the Kenya Revenue Authority. It concerns Sh5.1 billion in taxes paid by oil marketing companies. This tax was on a fuel cargo carried by the MV Paloma. The fuel was rejected and removed from the Kenyan market. Between March 28 and 30, One Petroleum discharged the fuel. It went into storage facilities operated by the Kenya Pipeline Company. This was under an emergency tender. However, the Energy and Petroleum Ministry intervened. It ordered the fuel’s withdrawal.
The fuel failed to meet local standards. It was also procured outside the Government-to-Government framework. As a result, 37 marketers were instructed not to uplift or distribute the fuel. They were also told not to make payment for it. This was despite the oil marketing companies having already remitted Sh5.1 billion in taxes. The taxes were based on their self-assessment. This was the amount that would be owed to the KRA. It was once the fuel was sold locally.
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Following the cancellation of customs declarations and the withdrawal of the cargo, the KRA informed the Senate Committee on Energy. It said it has been redirecting the tax payments. These were applied to subsequent fuel imports. They were not issuing refunds. By June 9, Sh2.8 billion had been applied to new customs declarations. This was for vessels imported after the MV Paloma was recalled. This amount accounts for more than half of the total.
The remaining balance is being handled in accordance with standard customs procedures. This situation originated from a supply shortage. In March, the Vessel Alignment Committee discovered super petrol stocks were running low. This was after the MV Elka Apollon was delayed. It was transiting the Strait of Hormuz. The delay was due to the Iran war. The ministry invited emergency bids. One Petroleum and Oryx Energies were selected. They were to import 60,000 tonnes of super petrol each. This was in response to the projected shortfall.
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The KRA’s approach to reallocating the tax payments is a practical solution, but it does not constitute a finalized accounting position. Since the tax was paid on a self-assessed sale that never occurred, it is not a legitimate debt; furthermore, applying it as a credit to future importers’ declarations rather than refunding the affected oil marketing companies directly creates a pooled industry fund that obscures individual tax liabilities — a precedent that warrants regulatory examination.
This also raises concerns about fairness, as oil marketing companies that were not involved in the rejected cargo have effectively subsidized the Treasury’s cash flow for a failed transaction. At its core, this issue is related to procurement governance, as an emergency tender that bypassed the Government-to-Government framework resulted in fuel that failed to meet Kenyan standards, highlighting the tension between rapid crisis response and quality assurance — a challenge that will be revisited during Kenya’s next supply crisis.
