Keroche Breweries to challenge ruling ordering it to pay KRA Ksh.9B in taxes

Keroche Breweries Limited has now vowed to challenge a decision by the Tax Appeals Tribunal ordering it to pay the Kenya Revenue Authority (KRA) over Ksh.9 billion in taxes.

The brewer, in a statement issued on Wednesday, said it will challenge the decision that it pays the authority a total of Ksh.9,116,835,985 at the High Court and, if need be, the Court of Appeal.

Keroche stated that the matter was yet to be exhausted, further dismissing what it termed as misleading reports by KRA which had claimed to have won following the Tribunal’s ruling.

The case pitting the taxman against the brewer involved the contentious manufacturing process of the Viena Ice brand of vodka as well as the classification of pineapple-based wines.

Keroche argued that Viena Ice vodka was not a distinct product from Crescent vodka since it (Viena Ice) was produced by diluting Crescent vodka, hence the process did not amount to manufacture.

“Mixing vodka and water does not result in the creation of a new product. Excise Duty, is, therefore, only payable when a new good is manufactured in Kenya,” said the brewer.

KRA however stated that the process undertaken by Keroche amounts to manufacture as is illustrated in the Compounding of Denatured Spirits Act Cap 123 as well as the Customs & Excise Act, CAP 472 (now repealed).

In the other appeal, the alcohol manufacturer argued that what they produced was fortified wines which should be classified under HS Code 22.04 thereby attracting lower excise duty rate of 40%.

In response, KRA held that HS code 22.04 was reserved for wines based on grapes yet Keroche’s fortified wine was purely fermented pineapple hence is classified under HS Code 22.06 which attracts a higher excise duty rate of 60%

The Tribunal, in a ruling delivered on Monday, said: “Keroche Breweries Limited was involved in the compounding of spirit which amounts to manufacture within the meaning in Excise Duty Act, 2015 and Customs and Excise Act, CAP 472 (repealed)as such Viena Ice was a distinct product for which Excise Duty was payable.”

The Tribunal also held that the fortified wines produced by Keroche was for grape based wines and that the correct classification for the brewer is a mixture of fermented pineapple and alcohol, making it a fermented beverage.

Keroche, however, termed the Tribunal’s judgment as “retrogressive, anti-entrepreneurship” and only serving to stifle Kenyan innovations.

“The decision by the Tax Appeals Tribunal refusing to recognize that our innovation to dilute our vodka with distilled water for more moderate drinking should not be subjected to punitive taxation,” said the brewer.

“This means that all water added to our vodka to make a ready drink vodka and consumed to date – backdated for the last eight years – now attracts Ksh.243.00 per litre. The decision to tax the water added to our vodka at the above rate makes this the most expensive water in the world.”

Keroche also accused the Tribunal of quashing a High Court ruling dismissing a tax claim by KRA 14 years ago despite the fact that the authority did not provide any new information as had been directed.

“The High Court in allowing KRA to appeal the 2006 ruling that dismissed their Ksh.1.2 billion tax claim against Keroche Breweries, asked the two parties to first try and resolve the matter through a tribunal on condition that KRA presents new information to advance their case,” said the Tabitha and Joseph Karanja-owned company.

“No new information was provided and we are shocked that the tribunal accepted the same case and narrative that was dismissed by the High Court 14 years ago.”