A committee of the National Assembly has asked the Kenya Revenue Authority (KRA) to explain delays in issuing a permit to a Japanese investor to commence operations of a newly set up alcohol distillery in Koru, Kisumu County.
The House's Finance and National Planning committee heard that KRA had failed to grant Yamaroku Limited, the makers of Koru Rum, licenses to operate its Sh7 million distillery.
Yu Yamakami, a Japanese investor, told the committee chaired by Molo MP Kuria Kimani that the distillery, which was set up in 2020, was yet to present Koru Rum in the market. Rum is a spirit made from sugarcane products such as molasses or fresh sugarcane juice (Agricole-style rum).
Ms Yu told MPs that there is only one legal framework for all distillers even though production sizes and processes are diverse.
The Japanese investor, who intends to set up Kenya’s first sugarcane Rum premium product for local and foreign markets, said the firm estimates to rake in more than Sh75 million turnover in a year. She said Koru Rum can produce 15,000 litres of Rum annually.
A tonne of sugarcane goes for Sh4,500, but if the same is distilled into Rum, it will fetch Sh250,000.
She said the KRA requirements to comply with the provision of Excise Duty Licenses will cost the company Sh25 million, and that the taxman requires distillers to install authorised flow meters that can be remotely monitored, whose estimated cost is Sh15 million.
They are also required to install tank capacity gauges or sensors that can be remotely monitored, which is a technical challenge to small distillers, besides mounting CCTV cameras that cost about Sh500 million.
Ms Yu said KRA requires the installation of automatic bottle filling and automatic labelling machines which cost approximately Sh8 million. Labour, transport, and other costs are estimated at Sh2 million.
“We are yet to start production despite investing Sh7 million in the distillery which has been ready for the past two years. We only produced a few litres for testing by the Kenya Bureau of Standards which has cleared our products for mass production,” Ms Yu, a co-founder and director of Yamaroku Limited said.
“The problem we are facing to allow us to roll out our Koru Rum is licensing by KRA. The current legal framework was developed for large-scale distilleries and compounders. It is not suitable for Micro Craft Distillers (MCDs).”
Appearing before the committee to make submissions on the Finance Bill, 2024, Ms Yu said the company had complied with all requirements and attained licenses from Kisumu County, the National Environment Management Authority (Nema), and the Kenya Bureau of Standards.
The Koru Rum Limited, she said is yet to receive a license from the National Campaign Against Drug Abuse (Nacada) and the KRA Excise Duty License.
“We propose that you help us have a separate legal framework of regulation of Micro Craft Distillers,” Ms Yu said.
“We would like to propose the establishment of a separate legal framework for MCDs that allows for licensing (Excise Duty License) and operation separate from the big scale distillers.”
Mr Kimani, who chairs the committee demanded to know from the KRA Deputy Commissioner Maurice Oray why an investor who had set up a Sh7 million factory had not been granted licenses to operate.
“This is an investment that can give us a lot of revenue. The KRA should fast-track its licensing. Why should you deny an investment that can generate Sh75 million annually and the government gets taxes?” Mr Kimani asked.
“If alcohol is legal, we should not push small players out in favour of big boys. We need safe options. We have been told here by small brewers that they control 0.5 percent market share, while big players have 97 percent market share
Mr Oray, who sat through the public participation sessions, said the Finance Act, of 2023 gives remissions under Section 38 to those using agricultural products to produce alcoholic beverages.
“Spirits manufactured from agricultural products are subject to remission. But I will take up the case of Koru Rum and see how we can help them start production on its sugarcane Rum,” Mr Oray said.
