- The Inland Revenue, in an unprecedented move, offered a detailed account of the 16-year battle with Keroche, including details of unpaid corporation tax, excise duty, VAT and 3 .02 billion shillings.
- The KRA revelation was in response to Keroche’s call for President Uhuru Kenyatta to intervene after the authority shut down the beer maker’s operations and froze its relationship with 36 banks, further aggravating the situation.
The Kenya Revenue Authority (KRA) has revealed that Keroche Breweries, based in struggling Naivasha, owes it 22.79 billion shillings in unpaid taxes, clouding the future of the brewer who has challenged the powerful East African Breweries (EABL ) #ticker:EABL .
The Inland Revenue, in an unprecedented move, offered a detailed account of the 16-year battle with Keroche, including details of unpaid corporation tax, excise duty, VAT and 3 .02 billion shillings.
The KRA revelation was in response to Keroche’s call for President Uhuru Kenyatta to intervene after the authority shut down the beer maker’s operations and froze its relationship with 36 banks, further aggravating the situation.
Keroche, owned by the Karanja family, linked its woes to a claim of 351 million shillings. But the KRA has portrayed the brewer as a cheat who owes the state more than 22 billion shillings in unpaid taxes.
At 22.79 billion shillings, the taxman is demanding what is almost the equivalent of the 24.9 billion shillings Safaricom #ticker:SCOM, the most profitable company in East Africa, paid the KRA . This is more than the market value of Kenya Airways and the combined value of nearly half of the companies listed on the Nairobi Stock Exchange (NSE) #ticker:NSE.
KRA accuses Keroche of failing to stick to agreed plans to clear tax arrears, including an agreement to pay half a billion shillings a month from December to clear a 4.49 billion shilling debt .
“Keroche has not honored the payment of the installments in accordance with the agreements,” the KRA said in a statement.
The 4.49 billion shillings was part of a tax demand of 7.54 billion shillings, which included penalties of 3 billion shillings. Keroche appealed to the Treasury to write off 3.99 billion shillings on the agreement that he would pay the 4.49 billion shillings. The Treasury has yet to respond to the request.
The KRA crackdown is a blow to Keroche, which was hoping to tap into a source of consumer patriotism among Kenya’s growing middle class to chip away at EABL’s market share through its Summit Lager and Summit Malt beers.
EABL, majority-owned by Diageo, led the market with products like Tusker and Guinness beers as well as Johnnie Walker whiskey and Smirnoff vodka. It swept London-based SABMiller to Kenya during the beer wars of the late 1990s.
Keroche’s entry saw analysts talking about ‘Beer Wars 2’, which now looks unlikely if the KRA presses with the multi-billion shilling tax demand.
The finances of Keroche, a private company, are not made public, but it is expected to struggle to raise the billions of shillings if the KRA has its way, putting the brewer’s assets and those of its shareholders at risk.
The tax battle looks set to stir political nuance after one of Keroche’s founders, Tabitha Karanja, opted to join politics and run for the Nakuru Senate seat.
Ms Karanja has joined the United Democratic Alliance (UDA), Vice President William Ruto’s party which is locked in a war of words with its boss, Mr Kenyatta, over presidential succession politics.
Unlike his predecessor Mwai Kibaki, Mr Kenyatta announced an aggressive campaign for veteran opposition leader Raila Odinga against Mr Ruto, who has expressed his own presidential ambitions.
The 7.54 billion shillings tax claim revolved around Keroche’s production process.
The company argued that the production of Vienna Ice does not constitute manufacture since the liquor is processed by diluting Crescent Vodka.
The brewer said that because of this, the two brands are one and the same product.
The tax authorities, for their part, relied on Chapter 123 of the Denatured Alcohol Preparation Act to argue that the process undertaken by Keroche amounted to the manufacture of a new product.
The other disputes concerned the classification of wines and the related taxes.
The brewer said it only sells fortified vinified products which are subject to excise duty at a rate of 40%.
But the KRA argued that the brewer should pay excise duty at a higher rate of 60% since it does not produce products in the category to which the lower rate applies.
Keroche and the KRA pursued an out-of-court settlement, leading to the 7.54 billion shillings settlement. On the 351 million shillings claim, the KRA believes this is a tax that Keroche collected and did not remit.
“This means that Keroche collected excise duty and VAT from its consumers through the sale of its products, but did not remit the taxes to the KRA,” the KRA said.
The two tax filings, the IRS says, informed his assault on Keroche, which began making spirits and wines in 1997 before branching out into beer in 2008.
The tax authorities have hinged their aggressive action on the Tax Procedures Act, which allows them to seek taxes directly from third parties such as banks, employers and suppliers, as well as to seize and auction off property to recover tax. unpaid taxes.
Cars, land, houses, office buildings, businesses and work equipment are on the KRA’s radar at a time when it has escalated the war against those it perceives as tax evaders.
The Keroche founders are also battling a 14.4 billion shillings tax evasion lawsuit, a new twist to the company’s eternal wars with the revenue agency.
Ms Karanja and her husband Joseph Karanja were arrested in August 2019 for alleged tax evasion in their alcohol production business since 2015.