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May 16, 2024

Kenya High Court rules tax laws don't explicitly impose additional customs duties on oil 'product gains'

  • The Kenya Revenue Authority sought to impose taxes on product gains that oil marketing companies experienced due to molecular expansion as a result of temperature or seasonal measurements affecting the observable volume of the product.
  • The High Court maintained that the import duties and levies on product gains are not anchored in law.
  • This decision affirmed that the law cannot be read as imposing a tax on product gains.

Executive summary

On 15 April 2024, the High Court in Kenya issued a decision in favor of an oil marketing company (OMC or Respondent), affirming that tax laws do not explicitly provide for additional customs duties on product gains. (See Commissioner of Investigations and Enforcement v Libya Oil Kenya Ltd (Income Tax Appeal E104 of 2021) [2024] KEHC 3624 (KLR).)

The decision also emphasized that tax statutes are to be strictly interpreted and there is no room for imputing anything the National Assembly has not legislated into statute.

The implication of this judgment is that product gains are not subject to tax.

Detailed discussion

The appeal forming the subject of the decision arose when the Kenya Revenue Authority (KRA) conducted a transfer pricing review of the OMC's operations and imposed a tax assessment that included tax on product gains.

The OMC appealed at the Tax Appeals Tribunal (TAT) and won the appeal. The KRA appealed the TAT judgment on several grounds, including the imposition of customs duties on product gains.

Appellant's arguments

The KRA asserted that petroleum products, on which customs duties have already been paid, experience certain gains and/or losses due to molecular expansion and contraction caused by changes in temperature or seasonal measurements that affect the observable volume of the product.

Consequently, the KRA sought to tax these "new" gains that had not previously been taxed.

Respondent's arguments

Opposing the appeal, the Respondent argued that the tax point of duties and levies payable on importation of petroleum products occurs upon their importation into the country and, as such, no additional duties and levies are due on product gains.

The Respondent further asserted that there is no provision in the statute that requires product gains to be declared for customs purposes a second time for purposes of levying additional customs duties.

The Respondent acknowledged that it is common for OMCs to incur operational gains and losses during storage and batch movement of petroleum products through the Kenya Pipeline Company pipelines. The Respondent, however, contended that product gains are part and parcel of the petroleum products, which are already duty-paid.

The Respondent also averred that the Appellant selectively levied additional duties on the product gains without granting the Respondent and other OMCs a credit for the corresponding product losses arising from the process.

High Court determination

The High Court noted that, under Section 138 of the East Africa Customs Management Act (EACCMA), the Respondent had a right to claim for a refund for approved losses. It further pointed out that both parties acknowledged that there were product gains and losses resulting from the petroleum products after import duties and levies had been paid when the goods are imported for home use.

It was the High Court's view that import duties and levies on product gains are not anchored in law. The Court emphasized that nothing should be read into or inferred from tax statutes, but regard should only be given to the language used.

The provisions of taxing laws must be express and clear to leave no room for ambiguity. In the event of any ambiguity, the statute must be resolved in favor of the taxpayer and not the revenue authority which bears the mandate of implementation of tax laws, the Court noted.


The High Court dismissed the Appeal due to lack of merit and upheld the decision of the TAT.


This case has been a matter of great interest to OMCs and the judgment provides guidance to the affected market players.

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Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young (Kenya), Nairobi

Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor