Kenya: Keroche Industries secures temporary orders stopping the taxman from recovering Sh9.1 billion in taxes from its accounts

On Friday, March 13, troubled Keroche Industries secured temporary orders stopping the taxman from recovering Sh9.1 billion in taxes from its accounts, the Daily Nation reported.

Kenya Revenue Authority (KRA) had gone for Keroche’s jugular by freezing the brewer’s Equity Bank accounts until the Sh9.1 billion tax demand is paid in full.

KRA’s move followed a Tax Appeals Tribunal ruling on March 12 that dismissed Keroche’s applications challenging the levying of excise duty on an alcoholic drink produced at the brewer’s Naivasha factory.

Justice David Majanja’s orders have given Keroche temporary reprieve as it figures out its next move.

The tribunal delivered its ruling on March 11 and told both Keroche and KRA that the judgment would be available on the same day.

Keroche now says that when it tried to get a copy of the judgment the following day, its lawyers — Hamilton, Harrison and Mathews — were told that the tribunal had taken a two-day break for a staff retreat.

While the latest claim by KRA is for Sh9.1 billion, Keroche claims that the taxman has in the past few months made several demands for a cumulative Sh23 billion.

What started out as a Sh1.1 billion tax demand on November 29, 2006 has now grown nearly tenfold and threatens to ground Kenya’s largest indigenous brewery.

Keroche’s fate now lies with the court system, which has for nearly 15 years kept the taxman at bay.

At the heart of Keroche’s latest troubles is one of its most popular products, Vienna Ice vodka, which KRA wants taken off the list of fortified wine products, which enjoy some tax relief. Fortified wines have a distilled spirit added to them.

The taxman argues that the fortified wine products list is reserved for grape-based drinks, while Vienna Ice is made from fermented pineapples.

KRA told the Tax Appeals Tribunal that fermented beverages attract 60 per cent excise duty as opposed to fortified wines that attract 40 per cent of the same levy.

The tribunal ruled that Keroche’s Vienna Ice falls under fermented beverages, which gave KRA the green light to recover the unpaid levies.

Keroche’s suit, filed on March 13 to challenge the taxman’s demands, is expected to reveal how the tax bill shot to Sh9.1 billion, although penalties and interest are likely to be some of the key reasons.

Last week, the tribunal questioned KRA’s move to levy interest and penalties on the tax demand while the two parties were seeking a resolution of the matter.

The beer maker has for years been fighting KRA’s attempts to delist Vienna Ice from the fortified wines products list at the tribunal.

When KRA demanded Sh1.1 billion from Keroche in 2006, the taxman backdated taxes on the drink for five years, but the brewer went to court to protest the move. The Court of Appeal eventually ordered KRA to issue a reasonable notice with supporting documents.

The taxman then issued demands for excise duty (Sh467,704,167), VAT (Sh388,594,657) and corporate and withholding tax (Sh737,333,959).

It is these demands, totalling Sh1.5 billion, that Keroche has been battling at the Tax Appeals Tribunal and which KRA says have grown to Sh9.1 billion.

Keroche CEO last week said in a statement that Vienna Ice was developed to encourage responsible drinking. The vodka is composed of 312ml of distilled water and 188ml of vodka.

“It is mixed to precision to reduce Kenyan’s intake of hard liquor” the company said, adding that KRA was making an attempt to tax the water used to dilute the drink, at the same rate with vodka.

“That means that water used to dilute the vodka to make ready to drink vodka should be charged at Sh253 per litre plus VAT,” Ms Karanja said.

Keroche insists that Vienna Ice is simply a diluted version of Crescent Vodka, another of the brewer’s products, with water and hence the process does not amount to manufacturing.

The CEO said that in six months, KRA has made unexplainable and unrealistic demands that have now reached Sh23 billion. She said the issue goes beyond the well-being of Keroche.

The CEO says in court papers that she has invested over Sh8.5 billion in the firm’s Naivasha factory, where 300 Kenyans are employed and nearly 10,000 indirectly benefit from the brewer’s business and products.

She adds that all this could go up in smoke if KRA is allowed to have its way.

The factory was built mostly by a loan from Barclays Bank (now Absa) and the brewer is still servicing it.

The Vienna Ice battle is the second between Keroche and a government agency over its products.

In 2015, the Kenya Bureau of Standards (Kebs) refused to grant Keroche a licence to produce Crescent gin, brandy and whiskey. Kebs had listed the brands as among those whose production was to be stopped when the government started a crackdown on the sale of illicit alcoholic beverages.

But a ruling by High Court Judge George Odunga in the same year shot down the crackdown, after Keroche challenged the decision and licence cancellation alongside six other brewers.

The cancellation was one of the reasons KRA refused to grant Keroche an excise tax licence in 2015.

At the time, KRA also cited failure by Keroche’s directors to submit tax compliance certificates and failure to settle a Sh1 billion tax bill.

Keroche’s fight with KRA, however, is just half the battle, as it is also fighting competitor East African Breweries Ltd (EABL) in two other lawsuits.

In the latter cases, Keroche has accused EABL of illegally branding beer bottles and keg containers and then using authorities to harass its distributors and suppliers.

It argues that the bottles and containers are universal and hence no company can claim exclusive use.

KRA and Keroche are expected to appear before Justice David Majanja on March 16 for further directions on how the case will proceed.

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