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Keroche loses Sh9bn tax dispute against KRA

Tax tribunal rules Keroche should pay KRA disputed amount

In Summary

•In August 2019, Keroche breweries was taken to court as it had failed to remit taxes worth Sh14.4 billion.

•The brewer then filed six appeals before the Tax tribunal in 2015 and 2017 respectively, on which the judgments were delivered on Monday.

Police arrest Keroche Breweries CEO Tabitha Karanja following DPPs order on tax evasion at the Naivasha based factory on August 22, 2019.
Police arrest Keroche Breweries CEO Tabitha Karanja following DPPs order on tax evasion at the Naivasha based factory on August 22, 2019.
Image: GEORGE MURAGE

Kenya Revenue Authority(KRA) has won a Sh9.1 billion tax dispute against Keroche Breweries Limited.

This stems from a 2019 case where Keroche was taken to court for failing to remit taxes worth Sh14.4 billion, which saw Keroche file six appeals before the Tax Appeals Tribunal in 2015 and 2017.

The brewer has however disputed the KRA's alleged win saying the matter is yet to be resolved. It plans to appeal the tribunal's ruling in the High Court

 
 

"The dispute process is yet to be concluded as we are dissatisfied with the decisions arrived at by the tribunal and we are headed to court," Keroche said in a statement.

It termed the tribunal's decision as retrogressive, anti-entrepreneurship and a stifler to much-needed innovations in the industry.

In three of the appeals, the contention was the manufacturing process of Vienna Ice Brand of Vodka.

The brewer argued that Vienna Ice brand of Vodka was not a distinct product from Crescent Vodka since Vienna Vodka was produced by diluting Crescent Vodka which process did not amount to manufacture.

The Tax Appeals Tribunal on Monday ruled that Keroche was involved in the compounding of spirit which amounts to manufacture within the meaning in Excise Duty Act, 2015 and Customs and Excise Act, CAP 472 and as such Vienna Ice was a distinct product for which Excise Duty was payable.

"The decision by TAT refusing to recognize that our innovation to dilute our vodka with distilled water for moderate drinking should not be subjected to punitive taxation," Keroche's statement read.

 

KRA relied on the Compounding of Denatured Spirits Act Cap 123 and argued that the process undertaken by Keroche was compounding within the meaning of the Act.

 

Compounding of spirits also amounted to the manufacture of new products within the definition of the Customs & Excise Act, CAP 472 (now repealed).

In the other three appeals, the contention was with regard to the classification of pineapple based wines.

Keroche had argued that what they produced was fortified wines which should be classified under HS Code 22.04 which attracted a lower excise duty rate of 40 per cent.

Their position was that the classification was specific for any fortified wine.

KRA’s position was that HS code 22.04 was reserved for wines based on grapes and Keroche’s fortified wine was purely fermented pineapple as such classified under HS Code 22.06 which is for any other fermented beverage.

HS code 22.06 attracts a higher excise duty rate of 60 per cent.

With regard to the fortified wines, the tribunal guided by the World Customs Organization explanatory notes on HS code found that HS code 22.04 was for grape-based wines and the correct classification was HS code 22.06 as the Keroche’s wine is a mixture of fermented pineapple and alcohol.

The Tribunal, however, faulted KRA for levying interest and late payment penalties for the period the disputes were being litigated at the High Court and the Court of Appeal which had directed that the matters be heard at the Tax Appeals Tribunal.