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Keroche ordered to pay KRA Sh9bn in tax arrears

Keroche Breweries will now have to pay more than Sh9 billion in taxes after losing a protracted and bitter dispute with the taxman.

The decision could cripple the Naivasha-based brewery, which was counting on the tribunal to spare it from Kenya Revenue Authority (KRA), which has turned vicious in the last few months in its tax raids.

KRA will now have the last laugh having been allowed to collect Sh9.1 billion in tax with regard to products manufactured and marketed by Keroche breweries Limited.

KRA won six appeals filed by Keroche before the Tax Appeals Tribunal in 2015 and 2017 respectively.

In three of the Appeals, the contention was the manufacturing process of Vienna Ice Brand of Vodka. The brewer argued that Vienna Ice brand of Vodka was not a distinct product from Crescent Vodka since Vienna Vodka was produced by diluting Crescent Vodka, a process that did not amount to manufacture.

Process undertaken by Keroche Breweries

“KRA relied on the Compounding of Denatured Spirits Act Cap 123 and argued that the process undertaken by Keroche Breweries was compounding within the meaning of the Act,” KRA said in a statement. “Compounding of spirits also amounted to manufacture of new product within the definition of Customs & Excise Act, CAP 472 (now repealed).”

The dispute in the other three appeals was with regard to the classification of pineapple-based wines.

Keroche had argued that what they produced was fortified wines, which should be classified under HS Code 22.04 that attracted lower excise duty rate of 40 percent.

Their position was that the classification was specific for any fortified wine.

KRA’s position was that HS code 22.04 was reserved for wines based on grapes and Keroche’s fortified wine was purely fermented pineapple and as such is to be classified under HS Code 22.06, which is for any other fermented beverage.

The ruling is set to send shivers in the alcohol and beverage industry, where several players are battling different tax disputes.

The tax tribunal, however, faulted KRA for levying interest and late payment penalties 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.