KRA Grapples with Sh5.1bn Tax Puzzle from Rejected Fuel

The Kenya Revenue Authority is grappling with a Sh5.1 billion tax puzzle after the MV Paloma fuel cargo was rejected and barred from the Kenyan market. One Petroleum imported the consignment under an emergency tender, discharging it into Kenya Pipeline Company storage between March 28 and 30. The Energy and Petroleum Ministry later ordered its withdrawal, citing non-compliance with local standards and sourcing outside the Government-to-Government framework. The 37 oil marketing companies who expected to distribute the fuel were instructed not to lift it and not to pay, though they had already remitted the taxes after self-assessing KRA’s potential demands.

As of June 9, KRA had applied Sh2.8 billion of the total to new customs declarations from vessels imported after the MV Paloma recall, with the remainder handled under standard customs procedures. The reallocation represents a pragmatic workaround, not a final accounting solution. Tax paid on a self-assessed sale that never occurred is not conventionally owed; instead, KRA is treating it as a credit against unrelated future importers’ declarations, merging individual liability into a pooled industry fund.

This approach raises fairness concerns, as OMCs uninvolved in the rejected cargo effectively funded the Treasury’s liquidity during a collapsed transaction. The episode originated from a supply scare: the Vessel Alignment Committee identified low super petrol stocks in March after the MV Elka Apollon failed to pass through the Strait of Hormuz amid Iran-related tensions. To avert a shortfall, the ministry issued emergency bids, selecting One Petroleum and Oryx Energies to import 60,000 tonnes each. The fuel’s failure to meet Kenyan standards exposes a gap between crisis-driven procurement speed and quality assurance.