The High Court has overturned a decision by the Tax Appeals Tribunal that had blocked the Kenya Revenue Authority (KRA) from collecting Sh513 million in taxes from Kenya Breweries Limited (KBL). The dispute arose from a 2021 government policy change adjusting excise duty rates to account for inflation.
In a ruling delivered by Justice Freda Mugambi, the court found that the tribunal had overstepped its authority by interpreting a High Court order that maintained a status quo on the implementation of new excise duty rates.
Justice Mugambi declared that KRA’s tax assessment was lawful and that the tribunal erred in declaring it invalid.
The legal battle began when the government, through Legal Notice No.217 of 2021, revised excise duty rates on alcoholic beverages and other goods, replacing the previous Legal Notice No.194 of 2020.
The changes, effective November 2, 2021, increased taxes on beer, cider, perry, mead, and fermented beverages (with alcoholic strength not exceeding six percent) – from Sh116.08 to Sh121.85 per litre. Other goods affected included spirits and beverages exceeding six percent alcohol.
However, on November 19, 2021, the High Court issued a status quo order suspending the new rates pending the hearing of a constitutional petition filed by a Nairobi lawyer.
Despite this, Parliament approved the adjustments days later under the Statutory Instruments Act.
In March 2022, KRA assessed KBL for unpaid excise duties covering November 2021 to February 2022, calculating a Sh513.7 million shortfall between the old and new rates.
The assessment computed the alleged variance between the excise duty payable under both the revoked 2020 and the new 2021 Legal Notices.
KBL objected, arguing that the status quo order rendered the 2021 rates unenforceable.
When KRA dismissed KBL’s objection in May 2022, the brewer appealed to the Tax Appeals Tribunal, which ruled in its favor in October 2023, annulling KRA’s assessment.
The tribunal held that the status quo order meant the 2021 rates were not operational during the disputed period in light of the status quo order, thereby rendering the assessment unlawful.
KRA appealed to the High Court, where Justice Mugambi ruled that the tribunal had misinterpreted the status quo order and exceeded its jurisdiction.
She emphasized that the tribunal should have deferred to the High Court’s ongoing constitutional review of the excise duty changes.
“The tribunal was under a duty to exercise judicial restraint by deferring its determination until the constitutional petition or the application had been conclusively resolved,” said Justice Mugambi. "It's finding that the assessment was unlawful is legally unsustainable."
She emphasized that the tribunal ventured into interpreting the High Court’s orders, which were outside the scope of its jurisdiction.
The court further clarified that the status quo order did not invalidate the 2021 excise duty rates, as Parliament had already enacted them.
Hence, KRA was entitled to apply the new rates.
She stated that the regulatory framework introduced by the 2021 Legal Notice remained valid and enforceable throughout the relevant period.
"The Commissioner was lawfully entitled to apply the provisions of that Legal Notice in raising the impugned assessment. The Tribunal’s finding to the contrary, premised on an erroneous interpretation of the status quo order, was therefore misplaced and without legal foundation," she affirmed.
The decision reinforces KRA’s authority to enforce tax adjustments despite legal challenges. It also sets a precedent on the limits of tribunals’ powers when higher courts are handling related constitutional matters.
KBL has not yet indicated whether it will appeal the ruling. The case highlights the ongoing tensions between tax authorities and businesses over fiscal policy changes in Kenya’s alcoholic beverage sector.
