Kenyan based brewery, Keroche gets reprieve in US$85m tax dispute

KENYA – In one of the longest tax disputes in the Kenya, Keroche Breweries has received temporary reprieve after the High Court extended an order barring Kenya Revenue Authority (KRA) from attaching its account over a Sh9.1 billion (US$85m) tax dispute.

According to a Business Daily report, Justice David Majanja extended the order to May 7, when he will rule on an application by the Naivasha-based brewer for a review of his directive, requiring Keroche to pay Sh500 million (US$4.6m) to KRA.

ADVERT

Last month, the judge directed Keroche to pay the amount within 30 days, pending hearing of an appeal the brewer has filed, disputing the tax demand.

But Keroche, through lawyer Kimani Kiragu moved back to court arguing that the downturn of businesses as a result of the Covid-19 pandemic makes it impossible to pay the amount.

He told justice Majanja that insisting on payment will destroy the business, cause loss of jobs, income for its suppliers and remittances to KRA, since it is a large taxpayer.

In the application for review of the Sh500m (US$4.6m) pay order, Keroche CEO Tabitha Karanja said the directive was made during a very difficult time, with the country suffering from the Covid-19 pandemic.

She added that the brewer can only raise the amount through a bank loan, but which was not possible because it was servicing another loan to Absa Kenya.

KRA argued that the tax due was much higher than Sh500 million (US$4.6m) and it was the duty of a taxpayer to honour their obligations.

At the same time, Keroche has written to KRA through its tax advisers asking for the Alternative Dispute Resolution, which is provided for under Section 55 of the Tax Procedures Act.

ADVERT

The company is contesting the Sh9.1 billion (US$85m) tax demand, and has accused KRA of reclassifying its products and backdating uncollected taxes, all in a bid to squeeze more from the firm.

At the heart of Keroche’s troubles is one of its most popular former products, Vienna Fortified wine which the brewer stopped manufacturing in 2007 after demand of alleged accrued tax following the tax man’s reclassification of the drink to a higher tax tariff and backdating uncollected taxs.

Keroche later introduced Vienna Ice Vodka in 2014 which KRA disputed the formula used in taxing in regards to its manufacturing process.

But Ms Karanja said Viena Ice is simply a diluted version of Crescent Vodka, another of the brewer’s products, with water hence the process cannot be equated to manufacture.

In other related news, brewers have joined hands with other glass bottle users to protest the 25% excise tax introduced through the Business Laws (Amendment) Act, 2020, saying it will be punitive since the industry relies heavily on imports.

In a memorandum presented to the Departmental Committee on Finance and National Planning, the glass users comprising the Kenya Breweries Limited (KBL), Coca-Cola beverages Africa, UDV Kenya Limited, Kenya Wines Agency Limited (KWAL) and Trufoods Limited have asked that the excise duty be removed for being counterproductive.

The manufacturers want the First Schedule to the Excise Duty Act amended by deleting the proposed 25% excise duty on imported glass “because local glass making companies do not have the capacity to serve increased orders”.

“They lack modern glass technology, which prevents them from switching from one type of glass to the next efficiently and the protection of glass manufacturing companies in Kenya violates the principle of equity and fairness in the taxation of excisable goods.”

“It will increase the cost of alcoholic products and soft drinks beverages in a season when household disposable income is facing the greatest negative impact due to the Covid-19 pandemic,” the manufacturers wrote.

The Kenya Revenue Authority (KRA) is said to have pushed for the amendments to boost its war on an alcohol cartel evading tax through unaccustomed liquor apart from boosting the sourcing of the bottles from within the country.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.