The Kenya Revenue Authority (KRA) wishes to thank the millions of Kenyans who continue to diligently pay their taxes as and when the taxes fall due. This demonstrates patriotism and the deepest sense of citizenship as we seek to achieve our shared prosperity as a Nation. During the year 2020/21 Kenyans in their millions payed Kenya shillings 1.669 trillion in taxes exceeding the target by Kenya shillings 16.8 Billion.  In the current financial year the nation is on cause to realize the projected Kenya shillings 1.882 Trillion. We must all be proud of this achievement. The achievement of these targets is largely attributed to economic recovery and diligent enforcement of compliance measures to ensure interdict tax evasion. We continue to use technology and intelligence driven tax compliance strategies that largely rely on information obtained from third party databases and working closely with other law enforcement agencies.

The development of our country is a shared responsibility where citizens pay taxes in accordance with laws enacted by Parliament and administered by the Kenya Revenue Authority on behalf of the Kenyan people. The Tax period, the Taxable persons,   the determination of taxes and amounts payable, and the due dates for payment of taxes are all provided for in tax laws which are meant to be complied with by all taxpayers without exception. KRA is only an administrator of the laws that are enacted by the Kenyan people through their elected representatives in Parliament.  The legal framework for recovery of taxes that remain unpaid is also well articulated in the tax laws which also provide elaborate mechanisms of resolving disputes where taxpayers do not agree with the decisions taken by the KRA.

KRA is required to keep taxpayer information confidential at all times. Taxpayer information may however become public in certain circumstances including when such information is the subject of litigation before Courts and the Tax Appeals Tribunal which are public fora. The taxpayer may also on his/her own volition put such information to the public. Where a taxpayer choses to do so, the 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 misguide the public if left in the public arena without clarification. In doing so the KRA is careful not to comment on matters before courts and will always seek to only clarify the facts to correct any misreporting.

There has been various disputes between Keroche Breweries Ltd. and the KRA. Some have been resolved and taxes settled. There is however need to provide some facts with respect to the outstanding disputes to clarify information that the taxpayer has provided to the public through various channels.

Excise Duty tax regime

Excise Tax is a consumption Tax where the manufacturers of excisable goods collect the tax from consumers and are required to remit the same to the KRA on or before the 20^th day of the following month. In the current case, Keroche Breweries Limited (Keroche) was required to collect Excise tax and Value Added tax (VAT)   on various products   and remit the same to the   KRA as stipulated by tax laws.

Brief history of Keroche’s disputes with KRA

1. On 11^th December 2006, Keroche Industries Limited which later changed it’s name to Keroche Breweries Ltd filed Judicial Review Application proceedings being Nairobi H.C. Miscellaneous Application No. 743 of 2006: Republic-versus-Kenya Revenue Authority and Five Others, Ex-Parte Keroche Industries Limited.

2. The Application challenged the Kenya Revenue Authority decision to classify Keroche’s Breweries Ltd fortified wine products under Harmonized System (H.S) Code Tariff heading 22.04 instead of under Code Tariff Heading 22.06 in respect of Excise Duty, Corporation and Withholding Income Tax and Value Added Tax (VAT) in respect of sales and trading activities covering the years of income 2002 to 2006.

3. The re-classification of Keroche’s Breweries Ltd products resulted in tax assessments as follows:-
4. On Income Tax, Excise Duty and Withholding Tax against Keroche, the assessment revealed a total sum of 802,919,447.00

183. On Value Added Tax, Interest and penalties thereof against Keroche Breweries Ltd, the assessment revealed a total sum of 305,094,183.00.

4. On 6^th July, 2007, the High Court delivered a judgment in favour of Keroche Breweries Ltd and quashed the assessment notices by KRA.

5. KRA was aggrieved with the decision of the High Court and appealed to the Court of Appeal through Appeal Nairobi Civil Appeal No. 2 of 2008: Kenya Revenue Authority and Five Others versus Keroche Industries Limited.

6. The Appeal was on the grounds that the Court:
   1. Did not take into account the existence of  a Tax Appeals Tribunal mechanism where the merits  of the case could be canvassed,
   2. Failed to recognise that it lacked jurisdiction to entertain the dispute before the exhaustion of that mechanism and
   3. Delved into the merits of the matter when the issue before Court one of alleged procedural impropriety through a Judicial review process.

7. On 3^rd February 2017, the Court of Appeal delivered its judgment in favour of KRA. In the said judgment, the Court of Appeal gave orders setting aside the High Court decision dated 6^th July 2007 and directed that KRA issues reasonable notices in regard to the tax assessments accompanied by supporting documents to Keroche Breweries Ltd.

8. Following the decision of the Court of Appeal on 3^rd February 2017 KRA issued Keroche Breweries Ltd with assessments as follows;
9. Excise Tax assessment for period 2002-2005 of Kshs 467,704,167.00;
10. Value Added Tax assessment for the period 2002-2005 of Kshs 388,594,657.00; and
11. Corporation Tax and Withholding Tax assessment for the period 2002 to 2005 of 737,333,959.00
12. Keroche Breweries Ltd did not agree with the assessments issued by KRA and objected to the same on 2^nd July 2017 as is provided for under the Tax Procedures Act.
13. KRA considered Keroche’s objection and issued an objection decisions to Keroche on 3^rd August 2017 confirming the assessment.

11. Keroche Breweries Ltd exercised its right of appeal by filing Appeals before the Tax Appeals Tribunal as follows:

• Nairobi TAT No 137 of 2017: Keroche Breweries Limited versus Commissioner of Domestic Taxes in relation to Excise Duty assessed at 467,704,167.00.
• Nairobi TAT No 138 of 2017: Keroche Breweries Limited versus Commissioner of Domestic Taxes in relation to Value Added Tax assessed at Kshs 388,594,657.00.
• Nairobi TAT No 139 of 2017: Keroche Breweries Limited versus Commissioner of Domestic Taxes in relation to Corporation Income Tax and Withholding Income Tax of Kshs 333, 818,737.20.

The total taxes amounted to Kshs.  1,190,117,561.00.

12. The Appeals were heard by the Tax Appeals Tribunal, which rendered its judgment on 9^th March 2020. The tribunal upheld KRA’s tax demands except for the aspect of interest and penalty levied by KRA in the period when the dispute was before the High Court and Court of Appeal respectively.   

13. The Tax Appeals Tribunal also released the judgment with regard to another set of three (3) Appeals, filed in 2015 & 2017 where the dispute related to the applicable excise rates to Keroche’s Vienna Ice Brand of Vodka from the year 2012. The three appeals had taxes demanded  amounting to  7,926,718,424.00

14. The Tribunal in the appeals on Vienna Ice Brand of Vodka held that the Keroche Breweries Ltd was involved in the compounding of spirit which amounts to manufacture within the meaning of the Excise Duty Act, 2015 and Customs and Excise Act, CAP 472(repealed). This therefore meant that Vienna Ice was a distinct product for which Excise Duty and VAT were payable.

15. The taxes in dispute in the six appeals are therefore as follows:

561. As relates to the HS Code for fortified wines Kshs 1,190,117,561.00
562. Regarding Vienna Ice Vodka Kshs 7,926,718,424.00

The total tax demanded is Kshs. 9,116,835,985.00.

16. In the intervening period, KRA and Keroche Breweries Ltd had entered into negotiations to resolve the Tax Cases amicably.
17. An agreement was reached on 14^th August, 2018 with regard to the Vienna Ice case. Keroche Breweries Ltd failed and refused to sign the agreement forcing the matter to proceed for full hearing before the Tribubal.  

18. Having received the judgements from the Tax Appeals Tribunal on 9^th March 2020, KRA commenced enforcement action against Keroche Breweries Ltd on 11^th March 2020. Keroche Breweries Ltd moved to High Court on 16^th March 2020 challenging the enforcement action taken by KRA. The High Court gave Keroche Breweries Ltd a reprieve against the enforcement measures by KRA by granting it stay orders on condition that Keroche Breweries Ltd pays KRA security for tax of 500,000,000 pending the hearing and determination of the dispute.

19. Keroche Breweries Ltd appealed the decision of the High Court on the payment of security of Kshs. 500,000,000. On 25^th June, 2020, the Court of Appeal directed Keroche to pay 100,000,000 pending the hearing of the Appeal, which amount they paid.

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

21. ADR seeks to enrich the entire dispute resolution process by providing flexibility and timely resolution of disputes without the limitations imposed by judicial and quasi-judicial processes as regards technical procedures, time taken and cost of litigation. It is significant to note that ADR is a voluntary, participatory and facilitated discussion over a tax dispute between a taxpayer and the Commissioner. It is in the form of facilitated mediation and not arbitration as envisaged in the Arbitration Act, (Chapter 49 Laws of Kenya), as the facilitator has no power to impose any decisions regarding the outcome of the tax dispute. Instead, the parties are facilitated to find a solution to the tax dispute.

22. The parties after amicably reviewing the issues in contention  entered into two agreements:
    1. on 23^rd July, 2021 (covering Excise Duty on normal beer, Corporation Tax, duplicate and prohibited VAT claims and Withholding Income Tax) and,
    2. On 21^st December, 2021 (covering Harmonised System Code and Excise Rate for Keroche special Alcoholic Drinks) to settle the matter in full.

23. By the agreement of 23^rd July, 2021, Keroche agreed to owe a total of Kshs. 272,211,842 comprising of Kshs. 134,447,847 in principal taxes and Kshs.137, 763, 995 in interest and penalties and offered to pay the principal taxes of Kshs. 134,447,847 in nine (9) monthly instalments starting from 25^th September, 2021. The payment plan was not honoured.

24. By the agreement of 21^st December, 2022, a tax of 7, 546, 317, 309 was agreed to be owing and payable, comprising principal tax of Kshs. 4,498,561, 062, penalty of Ksh. 66, 903, 401 and interest of Kshs. 2, 980, 852, 846. Out of the principle tax of Kshs. 4,498, 561, 062, Keroche Breweries Ltd proposed to pay Kshs. 500,000,000 in 24 equal instalments starting December 2021 and exercise their right in law to apply for abandonment of Kshs. 3,998,561,062 from the National Treasury. It was also agreed in writing that the taxes of Kshs. 3,998,561,062 will be settled by Keroche if the application for abandonment did not succeed.

25. In the two (2) agreements, Keroche Breweries Ltd was to apply for remission of penalties and interests upon full settlement of the outstanding principal tax liability.

26. The agreements were adopted as the judgments of the High Court on 12^th February, 2022.

27. Keroche Breweries Ltd has not honoured the payment of instalments as per the agreements.

Application for abandonment of tax

28. On 20^th January 2021, Keroche applied to the Cabinet Secretary National Treasury for abandonment of 3,998,561,062 tax for the period 2002 -2015. This application is under consideration in line with provisions of the law with respect to abandonment of taxes.

Other pending cases:

29. Keroche also has another dispute before the Tax Appeals Tribunal: TAT 488 OF 2021 Keroche Breweries Limited vs Commissioner for Domestic Tax: In this case filed in 2021, Keroche challenges the levying of Excise Duty on Vienna Ice Vodka, claiming that the alcohol content of the product is 6% and not 12.7% as asserted by the KRA. The revenue implication is 256, 368,436.

30. There is also an ongoing Criminal case Number 1436 of 2019 before the anti-corruption court  where Keroche Breweries Ltd  has been charged with  various offences on  taxes amounting to 14,451,836,375.00

Current Taxes 

31. On the issue relating to 351,000,000 taxes due and prominently highlighted by Keroche Breweries Ltd as being the main reason that led to the recent closure of the premises, it is imperative to note that this is principal tax which Keroche withheld  for the period January 2021 to date and has not remitted the same to KRA.  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.
32. By 14^th December, 2021, this amount was standing at 279,958,530 when by a letter dated the 14^th December, 2021 Keroche offered to pay the debt by instalments of Kshs. 20,000,000.00 from January 2022 to October 2022 and thereafter Kshs. 30,000,000 for the Month of November, 2022 and Kshs. 49,958,530 for the month of December, 2022. Keroche only paid Kshs. 1o,000,000 and dishonoured the agreement.
33. It is also important to note that these are self-assessed tax declared by Keroche Breweries Ltd in its monthly returns but not remitted. It can only mean that the Taxpayer may be using taxes collected to fund the company’s operations or for other private purposes.

34. Payment plans were agreed with the Keroche with regard to current taxes and the taxes agreed under the ADR process. The first plan agreed in July 2021 was not honoured, the second plan agreed on in December 2021 was also not honoured. Further in January 2022 Keroche requested for a review of the plan and the same was granted again in writing but still Not Honoured. 

35. Collection of Excise Duty is through Excise Stamps issued to manufacturers depending on their volumes of production. The KRA does not issue excise stamps to manufacturers who have not accounted for the stamps previously issued through payment of taxes collected or until outstanding undisputed taxes are paid in full or an agreed payment plan is entered into and the same consistently honoured.

Conclusion

36. Keroche Breweries Ltd has been accorded the opportunity to comply with the tax laws. The Taxpayer has been collecting taxes from consumers but not remitting same to KRA. The Taxpayer has not demonstrated any commitment to comply but has consistently failed to remit current taxes and also failed to honour the agreed payment plans.

37. By allowing any Taxpayer to continue collecting taxes and not remitting the same, KRA will not be executing her mandate of ensuring that taxes that fall due are remitted in a timely manner and that all taxpayers remit their fair share of taxes “Not a shilling more and Not a shilling less”. 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 business 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 tax paying businesses close down due to unfair competition from those not paying taxes.

38. KRA is committed to its mandate of revenue collection and trade facilitation. Addressing market distortions created by illicit trade which include non-payment of correct taxes is also trade facilitation.

39. The Authority appreciates compliant taxpayers for their input in Kenya’s economic sustainability by paying their fair share of taxes. The Authority is determined to enhance tax compliance through improving taxpaying experience and making it better for all taxpayers.

Commissioner for Legal Services & Board Coordination