Africa Oil has in a statement said that the recently assented to Finance bill by President Uhuru Kenyatta and whose publication is imminent will impact on the oil and gas sector both positively and negatively.
According to the Canadian explorer the abolishment of the previous withholding tax regime is a positive step that will allow farm out transactions to continue in a tax effective manner.
“Such transactions are heavily relied upon by the oil and gas industry in order to attract companies with the appropriate technical and financial capabilities to projects over the course of their life cycle, thereby mitigating technical and financial risk,” reads the statement.
Africa Oil says it continues to consider farm outs as it continues with its extensive exploration and appraisal program in East Africa.
The company however notes that the reintroduction of the capital gains tax for the first time in 29 years has a potential negative tax impact.
In the 2014 finance bill mining and gas sector companies will be taxed depending on their residency for tax purposes between 30 and 37.5 percent up from 5% in 1985 while the capital gains tax was last introduced.
“Africa Oil is working with advisors to understand the impact of this legislation and remedies available to the Company to minimize the potential impact of this tax policy. In addition, the Company is reviewing its approach to structure any potential future strategic transactions to ensure they minimize or eliminate any such taxation.”
The company adds that it is working with the industry representative body Kenya Oil and Gas Association KOGA to inform the government of the negative impact to Kenya’s early stage of oil exploration industry.
The talks with government will focus on potential legislative changes that would bring the rate of CGT to a level that will meet both the Government’s requirements to achieve revenue from such transactions while still promoting the future development of the industry.
“The Government and its advisors have repeatedly stated that contract stability and the sanctity of existing Production Sharing Agreements are a cornerstone of its economic policy regarding the oil sector,” concludes the statement.