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Keroche loses Sh9 billion excise duty battle with KRA at a tax tribunal

Keroche Breweries CEO Tabitha Karanja and her husband Joseph Karanja at Milimani Law Court on September 24, 2019. PHOTO | DENIS ONSONGO | NMG 

Keroche Breweries has been dealt a blow after the Tax Appeal Tribunal allowed Kenya Revenue Authority (KRA) to slap a tax demand of Sh9 billion on the Naivasha-based brewer.

The beer maker has had a protracted battle with the taxman over excise duty charged on its Viena Ice Vodka, a low-end alcoholic drink it produces by diluting another brand Crescent Vodka, and its fermented pineapple wines.

Keroche argues that the process of making Viena Ice does not amount to manufacture and it should therefore not attract excise duty similar to other brands with alcohol of 15 percent and above.

When the company CEO Tabitha Karanja and her husband Joseph Muigai were charged before a Nairobi court last year with tax evasion amounting to Sh14.5 billion, they alluded to the fact that the matters were pending before the Tax Appeal Tribunal.

“This comes as a surprise and all I can tell Kenyans is that the only dispute with the KRA is on the applicable rate on our Viena Ice ready-to-drink vodka, which is a matter that is ongoing at the Tax Appeals Tribunal; an institution constituted under law to handle such tax disputes,” the Keroche boss said then

They had been charged with fraud for posting incorrect statements on excise duty by reducing the company’s tax liability between February 20, 2015 and July 20, 2019. The largest amount allegedly reduced was Sh3.6 billion for the period between January and December 2017.

The brewer has had several run-ins with KRA. Three years ago, the company won a ten-year-old battle against KRA after a bench of three judges quashed a demand for assessments on income tax, excise duty and withholding tax amounting to Sh800 million.

On Wednesday, the tribunal dismissed six cases filed by Keroche clearing the way for KRA to collect tax amounting to Sh9,116,835,985 from the company.

Three appeals were related to Viena Ice Vodka, while the three others on the pineapple-based wines.

While defending the assessment, KRA said the process of making Viena Ice was manufacturing according to the Compounding of Denatured Spirits Act, thereby attracting higher excise duty.

Similarly, the taxman argued that the brewer’s stance that their fortified wines should attract lower excise duty rate of 40 percent under classification HS Code 22.04 was incorrect. KRA said, while Keroche’s position was that the classification was specific for any fortified wine, HS Code 22.04 was reserved for grapes-based wines only.

Keroche’s fermented pineapple wines are classified under HS Code 22.06, which attracts an excise duty rate of 60 percent, KRA said.

The tribunal said it was guided by the World Customs Organisation explanatory notes on HS codes in making its ruling on the matter.

It, however, faulted KRA for levying interest and late payment penalties for the period the disputes were being heard before the High Court and later the Court of Appeal.

Keroche has told the Business Daily that it will appeal the ruling at the High Court.

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