Why Keroche was shut down - KRA spills beans on tax dispute

KRA breaks down how Keroche came to owe over Sh9 billion in disputes that began in 2006.

KRA Commissioner General James Mburu

The Kenya Revenue Authority has issued a breakdown of its tax dispute with Keroche Breweries which has accused the taxman of closing down operations.

KRA said that while taxpayers’ information is private and confidential, the agency had to issue a clarification on what was ailing the alcohol manufacturer.

The taxpayer may also on his/her own volition put such information to the public. Where a taxpayer chooses to do so, then KRA is left with no choice but to clarify any information provided by a taxpayer to the public which in the view of KRA is not correct and may misleading,” read part of the statement.

KRA and Keroche’s disputes date back to 2006 when KRA demanded dues such as Excise Tax of Sh467,704,167, VAT of Sh388,594,657, corporation Tax and withholding tax of Sh737,333,959.

What followed is a series of litigation procedures and after reaching an agreement, Keroche’s dues were upheld by the Tax Appeal Tribunal.

Keroche did not agree with the assessments and appealed but the TAT upheld KRAs tax demands. In the intervening period, KRA and Keroche had entered into negotiations to resolve the Tax Cases amicably.

An agreement was reached on August 14, 2018. Keroche failed and refused to sign the agreement forcing the matter to proceed for a full hearing before the tribunal.

KRA commenced enforcement action against Keroche on March 11, 2020. They moved to High Court on March 16, 2020 challenging the enforcement action taken by KRA.

The Tribunal also released another judgment with regard to another set of appeals, filed in 2015 and 2017 over a dispute regarding applicable excise rates to Keroche’s Vienna Ice Brand of Vodka from the year 2012.

Keroche was required to pay another Sh7.9 billion in taxes, pushing the total amount to Sh9.1 billion.

The High Court gave Keroche Breweries Ltd a reprieve against the enforcement measures by KRA by granting it stay orders on the condition that Keroche Breweries Ltd pays KRA security for tax of Sh500 million.

Keroche appealed the decision again on the payment of security of Sh500 million. On June 25, 2020, the Court of Appeal directed Keroche to pay Sh100,000 pending the hearing of the Appeal, which they paid.

Following the stay Orders at the Court of Appeal, KRA and Keroche agreed to engage in Alternative Dispute Resolution (ADR) with a view to resolving the matter out of court.

The parties after amicably reviewing the issues in contention entered into 2 agreements on July 23, 2021, and On December 21, 2021, to settle the matter in full. Keroche was to apply for remission of penalties and interests upon full settlement of the outstanding principal tax liability.

The agreements were adopted as the judgments of the High Court on February 12, 2022. Keroche has not honoured the payment of instalments as per the agreements.

Other than the above dues, KRA was also expected to pay Sh351 million as principal tax which Keroche withheld for the period January 2021 to date.

This means that Keroche Breweries Ltd has been collecting Excise Duty Tax and VAT from its consumers through the sale of its products but has not been remitting the taxes to KRA.

In a letter dated December 14, 2021, Keroche offered to pay the debt by instalments of Sh20 million from January 2022 to October 2022 and thereafter Sh30 million for the Month of November 2022 and Sh 50 million for the month of December 2022.

However, Keroche only paid Sh10 million and dishonoured the agreement.

To allow a manufacturer to sell their products without levying correct taxes or to collect taxes without remitting will amount to granting those evading taxes undue advantage over the many law-abiding taxpayers who diligently pay their taxes. It is to introduce distortions in the market that will end up killing tax-paying businesses at the expense of those that do Not remit taxes. In the end, No taxes will be paid and employment will be lost when the taxpaying businesses close down due to unfair competition from those not paying taxes,” KRA concluded.

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