Keroche financial crisis deepens, defaults on tax

The cash crisis facing Kenya’s second-largest beer maker Keroche Breweries has deepened after it defaulted on a tax repayment plan and ran into salary arrears by more than two months.

The Business Daily has learnt that trouble at the Naivasha-based brewer became apparent in December when it was shut down by officials of the Kenya Revenue Authority (KRA), but the matter was quietly resolved during the festive season.

Last week, KRA officials were back to torment the brewer after it defaulted on an earlier agreed tax repayment plan in the latest chapter of its long-running battle with the taxman.

The firm’s boss Tabitha Karanja said that the cash flow challenges caused the two-month salary delay, but promised that the management team was working around the clock to settle the employees’ dues.

She dismissed claims by some of her employees that the salary arrears were now running into six months.

The firm, she said, had yet to fully recover from the ripple effects of the Covid-19 pandemic, three months after the containment measures were lifted, and it had to renegotiate its payment plan with the taxman last week before it was left to continue with its operations.

“To be candid, the ripple effect of the disease greatly affected our tax obligation and this resulted in arrears amounting to Sh270 million,” Mrs Karanja said in an interview at her office.

“Before Covid-19 hit us hard, we were able to pay the Sh200 million (tax) comfortably but we had a slight delay in settling the outstanding amount.”

Mrs Karanja, who has since announced that she is relinquishing her position to run for the Senate, said the KRA has been more understanding to the plight of the alcohol industry which saw them agree on a new payment plan.

The firm has opted for the alternative dispute resolution (ADR) in its tax dispute with the KRA.

She said before the current agreement, the firm had been closed for at least two weeks by the taxman, but said full operations had resumed.

“We are hoping to continue honouring our tax obligations going forward as things are now looking up,” she said.

“We have weathered the storm and with the goodwill from the KRA, we shall continue to pay our taxes,” she said.

Keroche has in recent months been on an expansion programme, introducing two brands as it seeks to increase its market share.

It recently launched the Viena Ice Strong Lager -- with an alcoholic content of 10 per cent -- targeting all levels of consumers.

The beer maker also unveiled Brand X, with an 8.8 per cent alcoholic content.

From mid-last year, the brewer has been reengineering its operations and executing a cost-cutting strategy to stay afloat.

At the height of the pandemic, the firm scaled down on major operations, only retaining staff offering critical services such as maintenance.

The company also sent some of its employees on unpaid leave, while others had their stay-home period extended.

Keroche has been eyeing more than 20 per cent of the market share with a production plant that has a capacity of producing 30 different brands.

The company has enjoyed steady growth since its inception 18 years ago.

But it has been in the crosshairs of the taxman in recent years after the new Commissioner-General Githii Mburu trained its guns on the alcohol industry in his quest to seal tax leakages in the sector.

The targets of the KRA’s tax crackdown include London Distillers Kenya, whose directors are now battling tax evasion-related charges in court for claims totalling more than Sh2 billion. The taxman is also embroiled in a bitter fight with Mount Kenya Breweries over tax evasion claims.

Tax evasion in the alcoholic businesses is said to cost the country at least Sh10 billion annually in unpaid taxes.

For its part, Keroche has been in and out of court with the taxman over a Sh9.1 billion tax dispute.

The brewer got temporary orders stopping the taxman from attaching its accounts on condition that it pay Sh500 million, pending appeal. The firm filed another appeal saying it could not raise the amount.

The KRA further said it had extended an olive branch to the company, including entering an alternative dispute agreement or a payment proposal but the brewer reneged. The matter is now being handled out of court.