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Coca-Cola wins Sh5.6bn legal fight with taxman

Coca-Cola
A forklift carries bottles of soda inside Coca-Cola’s Equator Bottlers factory in Kisumu. FILE PHOTO | NMG 

Coca-Cola has won a decade-long dispute with the Kenya Revenue Authority (KRA) after the Court of Appeal ruled in favour of the beverage company, a move that denyies the taxman about Sh5.6 billion.

Three judges of the Appellate Court ruled that levying tax on returnable containers (bottles and crates) every time they are refilled would amount to multiple taxation which is, “needless to say, unconscionable and unlawful”.

“In our view, the exclusion of returnable containers from the ex-factory selling price as per the previous legislation must have appreciated the unique nature of the practice in the industry and the dealing in such containers,” said Justices Wanjiru Karanja, Otieno Odek and Kantai ole Sankale.

In the case, Mount Kenya Bottlers Ltd, Rift Valley Bottlers, Nairobi Bottlers and Kisii Bottlers moved to court in 2009 after the KRA demanded an outstanding aggregate sum of Sh5,620,730,161 on account of alleged arrears of excise duty, value-added tax and interests

This was after the KRA carried out various tax audits on the bottling firms for the period between 2006 and 2008.

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The taxman later found that the companies had failed to include the cost of returnable containers in arriving at the excise duty payable.

The taxman sought to determine the number of products the bottlers sold from their monthly excise returns for the periods under review and applied the same to constructively establish the number of returnable containers used by the appellants for operations.

Thereafter, the taxman multiplied the same by the deposits the bottlers’ customers paid on the said containers before arriving at the figure.

The company argued that the returnable containers are solely used for packing and distributing liquid soda and remain their property hence ought not to be subjected to tax as they are not the manufacturers of the said containers.

The KRA on its part argued that the audit was based on the books of accounts, which revealed that the bottlers treated the returnable containers as capital assets and not inventory items.

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