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The unspoken about Keroche tax row

tabitha

Keroche Breweries chief executive Tabitha Karanja addresses the media on March 9, 2022. PHOTO | DIANA NGILA | NMG

A few days ago, the CEO and co-owner of Keroche Breweries came out to publicly claim that their company had been unfairly targeted by the taxman after its factory was shut down over tax arrears.

She went ahead to petition the President to intervene and save her company from shutting down.

This is not the first time, though, that the Kenya Revenue Authority (KRA) has shut down the factory of Keroche. In December 2021, the taxman closed the factory and issued agency notices to 36 banks over tax arrears.

Sigh of relief

There was a sigh of relief end of last week when the KRA announced that it had come to an agreement on a payment plan with the brewer, setting the stage for the reopening of the factory.

The payment plan will see Keroche settle the undisputed tax amount of Sh957 million over a period of 24 months starting from January 2022.

Before the agreement, the KRA had released a detailed statement defending its decision on Keroche’s tax arrears. The statement from KRA appeared to suggest that the issue was more than a tax evasion problem.

It is worth noting that Keroche is involved in a number of tax disputes with the taxman.

Looking at the various disputes, it is either we have a complex tax system that has made Keroche struggle with compliance or Keroche simply is not bothered to be tax-compliant.

The other scenario is that Keroche has been facing a serious financial problem and has been using taxes it collects to sustain its operations instead of remitting them to the KRA.

Collected taxes

For example, between January 2021 to date Keroche withheld taxes totalling Sh351 million from excise duty and VAT. But interestingly it never submitted these collected taxes to the taxman as required by law.

In fact, this amount isn’t a tax assessment not done by the KRA but it’s what Keroche self-declared in its monthly returns. So, why would Keroche not remit taxes it has already collected from consumers?

The KRA maintains that there have been a number of agreed payment plans between the company and the KRA but none has been honoured by Keroche.

The first plan was agreed in July 2021 but was not honoured by Keroche, according to the KRA.

The second plan was agreed in December 2021 where Keroche would pay the tax arrears in instalments of Sh20 million from January 2022 to October 2022 and thereafter pay Sh30 million for November 2022 and Sh49 million for the month of December 2022.

Keroche reportedly only paid Sh10 million and failed to honour the agreement and instead asked for a review of the payment plan.

It would have been appropriate for the CEO to provide more information about why previous plans were not honoured despite her seeking another new payment plan.

So far from an outsider’s perspective, the only conclusion that comes to mind is that Keroche must be in a serious financial problem and is using taxes it has already collected from consumers to sustain its operations. What else would be the reason Keroche cannot remit taxes it has already collected?

Petition parliament

If that is the case, Keroche should come clean and petition Parliament, not the President, if she is seeking an indemnity from the tax arrears. Under the Constitution, it is Parliament that has those powers and not the President.

If Keroche is already struggling to pay tax arrears of Sh351 million, will it manage to clear Sh9 billion tax arrears if it loses the appeals in court?

Keroche has six appeals related to the harmonised system (HS) code for fortified wines worth Sh1.19 billion and Sh7.92 billion on Vienna Ice Vodka product, bringing the total tax demanded by the KRA to Sh9.11 billion.