New Bill waives tax billions to rescue stalled Turkana oil project

A new law that offers sweeping fiscal incentives to investors in the Turkana oil fields is currently before MPs.

The proposed Special Economic Zones (Amendment) Bill, 2026, seeks to significantly reduce the tax burden on companies investing in upstream and midstream petroleum operations.

The Bill proposes amendments to key tax laws, notably the Income Tax Act, the Value Added Tax Act and the Miscellaneous Fees and Levies Act.

It aims to lower initial capital outlay and long-term operating costs for oil firms.

Among the most far-reaching changes is the removal of a 10-year cap on tax exemptions for certain payments made to non-residents, including royalties, management and consultancy fees.

By scrapping the time limit, the government would allow tax exemptions on certain payments to non-residents, extending the licence's duration.

Oil companies operating in designated Special Economic Zones (SEZs) are set to enjoy the exemptions indefinitely should MPs enact the Bill sponsored by Majority leader Kimani Ichung’wah.

It also expands Value Added Tax exemptions to cover goods imported for use in petroleum-focused SEZs.

As such, critical equipment, machinery and materials required for exploration, extraction and processing will enter the country tax-free.

In addition, the proposed law exempts such imports from the Railway Development Levy, further easing the financial burden associated with transporting heavy equipment.

The reforms target the South Lokichar Basin project in Turkana county, a venture that has remained in limbo for years despite early discoveries.

Oil exploration and extraction have not picked up largely due to high development costs and investor concerns over returns.

“The Bill seeks to implement the observations and recommendations of the joint committee (Energy) of the National Assembly and Senate on consideration of the field development plan and production sharing contracts for blocks T6 and T7 in South Lokichar Basin, Turkana county,” the Bill reads in its memo.

“The report, which made proposals on the need to extend the ambit of special economic zones' legal and regulatory regime to midstream and upstream petroleum operations, was adopted by both Houses of Parliament.” 

In the report, MPs noted that fiscal incentives such as VAT zero rating applied only to SEZ enterprises but not those in the petroleum sector.

“Government policy has always been to spur exports through various tax and policy incentives, and therefore the incentives sought by the project are neither novel nor exceptional for an export-oriented project,” the report reads.

For the government, the foregone revenue today will be offset by future oil production, exports and broader economic activity.

The push for incentives comes against the backdrop of a renewed effort to unlock the Lokichar oil fields, now controlled by Gulf Energy following its acquisition of assets previously held by Tullow Oil.

The project is estimated to require about $6 billion (about Sh780 billion) to reach first oil, a capital requirement that has long been cited as a major barrier to progress.

Ichung'wah has positioned the changes as necessary to align the country’s fiscal regime with competing oil-producing jurisdictions, many of which offer similar or even more aggressive incentives to attract capital.

“The amendments are intended to expand the scope of SEZ to include the oil and gas sector, remove certain legal inconsistencies relating to the eligibility of companies operating within the SEZs, and harmonise tax incentives applicable to SEZ entities,” the memorandum of objects reads.

If passed, the proposed law would mark one of the most significant fiscal policy shifts in the energy sector in recent years. 

INSTANT ANALYSIS

The Bill has already undergone its First Reading in Parliament and has been referred to the relevant committee for further scrutiny and public participation. Lawmakers are currently inviting submissions from stakeholders and members of the public ahead of the next stage of debate.