TAX DISPUTES

KRA disputes with local manufacturers spell doom for Big Four agenda

Where there are tax disputes, amicable ways of resolving the same should be used.

In Summary

• It goes without question that the manufacturing sector in Kenya has faced tremulous times.

• It is surprising the Kenya Association of Manufacturers has remained mum all along.

 

SPOTLIGHT : Keroche Breweries CEO Tabitha Karanja. The brewer has sued KRA over a closure order
SPOTLIGHT : Keroche Breweries CEO Tabitha Karanja. The brewer has sued KRA over a closure order

The Kenya Revenue Authority has in the recent past been engaged in protracted legal battles with some local manufacturers, threatening their existence and operations.

It is surprising that the Kenya Association of Manufacturers, the institution that is supposed to champion for the rights of local manufacturers has remained mum all along.

Keroche Breweries Ltd, for instance, has been engaged in a long protracted legal battle with KRA, which is threatening to bring the operations of the Naivasha-based brewer to a halt.

KRA is demanding Sh9.1 Billion in taxes relating to products (Vienna Ice Brand of Vodka) produced over a period of time.

The bone of contention being whether the process of producing Vienna Ice Vodka by diluting another brand, Crescent Vodka, and fermented pineapples amounts to a manufacturing process.

The taxman alleges the brewers process amounts to compounding within the meaning of the Denaturing Spirits Act Cap 123 laws of Kenya. The taxman further argues that compounding of spirits amounts to the manufacturing of a new product within the definition of the Customs and Exercise Act Cap 472 laws of Kenya.

Keroche, on their part, argue that the product is produced from fortified wines, which should be classified under the Harmonised System Code Tariff Heading 22.04 that attracts a lower exercise duty rate.

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 and, as such, it is to be classified under HS Code 22.06, which is for any other fermented beverage.

After several appeals at The Tax Tribunal, KRA has been given the go-ahead and collect the Sh9.1 billion. The reality is that the brewer may be forced to close down as it may not have the capacity to raise the amount at once.

Mumias Sugar Company Ltd is another manufacturer that is involved in a legal battle with the taxman. The KRA tax dispute with Mumias Sugar Company stems from unpaid taxes amounting to Sh10 billion dating back to 2012.

KRA has written to commercial banks to restrict transactions on accounts belonging to cash strapped miller in a bid to recover the unpaid taxes. To compound the problem further, KRA is blocking trucks from loading Ethanol from the miller’s plant.

Recent reports show the taxman has demanded the sugar miller should deposit Sh100 million in the form of a bank guarantee before ethanol can be loaded on to awaiting trucks. This move has complicated the efforts by the receiver manager to turn-around the ailing miller.

It goes without question that the manufacturing sector in Kenya has faced tremulous times. Its contribution to the GDP has significantly dropped, and local analysts predict the trend may lead to premature deindustrialisation.

The Kibaki government came up with the Vision 2030 that had a great vision for the manufacturing sector with its Kenya Industrial Transformation Programme. If well implemented KIPT, would have set up the country for an industrial takeoff. Despite the current government coming up with an ambitious Big Four agenda that has a manufacturing pillar, there has been little to prove it is serious in revamping ailing or collapsed industries.

The net effect of KRA actions on local manufacturing firms is the collapse of manufacturing sectors leading to job loses.

Secondly, it will result in an increase of the importation of manufactured products, hence supporting foreign industries at the expense of our local businesses.

Thirdly, the actions negate and hamper the effective implementation of the Big Four agenda, and in particular the manufacturing pillar. In spite of the glaring reality that the Big Four agenda may not be achieved, they may do the country good by laying a good foundation for an industrial renaissance take-off. Such a takeoff entails encouraging the thriving of the local manufacturing sector at all costs.

The government should at the bare minimum be consistent in its talk and encourage the growth of the local manufacturing sector as much as possible.

Where there are tax disputes, amicable ways of resolving the same should be used.  KRA should encourage the continuous operations of local manufacturers because that is how they widen the tax bracket and not narrow it down.

Finally, the government should encourage and applauded efforts to resuscitate local plants. In any case the money being used to revive sugar millers comes from the Exchequer. You cannot, therefore, purport to give with one hand and collect with the other.

 

Mukoma Munyuthe, Lawyer and Nakuru politician