Keroche risks KRA asset seizure over Sh9bn bill

Keroche Breweries risks having its assets seized after the Kenya Revenue Authority (KRA) secured victory at the tax tribunal to collect Sh9.1 billion from the troubled brewer.

The taxman Wednesday announced that it had won an appeal filed before the Tax Appeals Tribunal in 2015 and 2017 by Keroche, allowing it to proceed with the collection of the outstanding taxes.

The tribunal’s judgment was delivered on Monday setting the stage for a fresh round of court cases as the KRA pushes to enforce the tribunal’s order.

The finances of Keroche, a private company, are not publicly available but it is expected to struggle to raise the billions of shillings if the KRA has its way, placing the brewer’s assets and those of its shareholders at risk.

On Wednesday, Keroche said it will escalate the tax battle with the KRA to the High Court and Court of Appeal.

The taxman has hinged its aggressive action on the Tax Procedures Act, which empowers it to seek taxes directly from third parties like banks, employers and suppliers as well as seize and auction property to recover unpaid tax.

Cars, land, homes, office blocks, companies and work place equipment are on the KRA’s radar at a time when it has stepped up the war against those it perceives as tax cheats.

“The Commissioner is also empowered to hold as security an asset such as land or a building owned by a taxpayer who has defaulted in payment of tax,” the KRA says in its Tax Investigations Handbook

“This is done through placing caveats on subject properties and other assets owned by taxpayers and beneficiaries.”

The taxman’s Investigations & Enforcement department has another unit dubbed Asset Recovery & Evidence Analysis which is expected to spring into action in case the brewer does not settle the tax bill.

Keroche’s main asset is its brewing plant in Naivasha where it manufacturers the Summit Lager and Summit Malt beers. The company is seeking to stave off the impending enforcement action by appealing the tribunal’s decision.

The law allows Keroche to file an appeal at the High Court within 30 days from the date of the tribunal’s ruling.

If it loses such an appeal at the High Court and is still dissatisfied, it can escalate the legal battle to the Court of Appeal within 30 days.

Keroche, which started by making spirits and wines in 1997 before diversifying into beer in 2008, has termed the KRA’s announcement to enforce the tribunal’s decision premature.

“The dispute process is yet to be concluded. In any case we as Keroche Breweries are dissatisfied with the decisions arrived at by the Tax Dispute Tribunal,” Keroche said in a statement yesterday.

The taxman, meanwhile, says it is moving to collect the taxes.

“The KRA is set to collect tax of Sh9.1 billion from Keroche Breweries Limited with regard to products manufactured and marketed by Keroche Breweries Limited,” the agency said in a press release.

“This follows a big win by the Kenya Revenue Authority in the six (6) Appeals filed by Keroche before the Tax Appeals Tribunal in 2015 and 2017 respectively.”

In some of the tax disputes, the issue revolved around Keroche’s production process.

The company argued that production of Vienna Ice did not amount to manufacture since the liquor is processed by diluting Crescent Vodka.

The brewer said that because of this, the two brands are one and the same product.

The taxman on its part relied on the Compounding of Denatured Spirits Act Cap 123 to argue that the process undertaken by Keroche amounted to manufacture of a new product.

The other disputes hinged on the classification of wines and the associated taxes.

The brewer said that it only deals in fortified wine products that attract excise duty at a rate of 40 percent.

For its part, the KRA says the brewer ought to pay excise taxes at a higher rate of 60 percent since it does not produce products in the category on which the lower rate is applicable.

The KRA asserted that the lower tax regime is reserved for wines based on grapes and that Keroche’s fortified wine was purely fermented pineapple and as such is to be classified as any other fermented beverage.

The tribunal, citing the World Customs Organisation rules, found that the 40 percent tax rate was for grape-based wines.

Keroche’s wine is a mixture of fermented pineapple and alcohol, the tribunal declared.

The tribunal faulted the KRA for levying interest and late payment penalties on Keroche for the period the disputes were being litigated at the High Court and the Court of Appeal, which had directed that the matters be heard at the Tax Appeals Tribunal.

The tax dispute filed at the tribunal was among scores of battles that Keroche has fought with the taxman over the years, with the company being accused of understating its tax obligations.

The company, launched at the home of its founders Joseph Muigai and Tabitha Karanja, has fashioned itself as a home-grown David taking on Goliath (Diageo-controlled East African Breweries Limited).

The couple was arraigned last year with charges of tax evasion amounting to Sh14.5 billion.