The Kenya Revenue Authority (KRA) has dropped its $79 million (Sh10.18 billion) tax claim against the local subsidiary of US energy firm Ormat Technologies, the company said.

Ormat's local subsidiary, OrPower 4, is the third largest power producer in Kenya, behind state-owned KenGen and Lake Turkana Wind Power, and generates geothermal electricity. OrPower 4 generates and sells electricity to Kenya Power under a 20-year power purchase agreement expiring between 2033 and 2036.

In a new disclosure, Ormat said the KRA had dropped the multi-billion shilling tax claim against it.

“On July 8, 2024, the KRA informed the company that its investigation was concluded and closed and that the initial demand for $79 million would be reduced to zero, and as a result, no additional taxes, interest, or penalties would be due,” Ormat said.

“On April 23, 2024, the Company's branch in Kenya received a Letter of Preliminary Investigation Findings from the Kenya Revenue Authority relating to tax years 2017 to 2022. The Letter sets forth a demand for approximately $79 million before any potential interest and penalties,” the firm said.

In response to queries from the Business Daily, the KRA said it had not issued a tax demand to the firm, but was merely seeking clarification on a matter it was investigating.

“The letter sent by KRA to the Taxpayer on April 22, 2024 was not a tax demand but a request seeking clarification on preliminary issues established from a tax investigation,” said KRA in an emailed response.

“The taxpayer responded via a letter dated May 17, 2024, and June 26, 2024 which sufficiently addressed the issues raised,” it said.

The KRA has been stepping up tax collection amid a recent spate of missed targets.

The tax agency's revenue performance has been lacklustre under President William Ruto's tenure, thanks to a weak economy weighed down by high taxes, higher interest rates and runaway inflation.

The last time the authority met its revenue target was in the 2021/22 financial year. In that year, it collected Sh2.031 trillion in tax revenue, which was higher than the target of Sh1.976 trillion.