What you need to know:
- The ruling is set to send shivers in the industry where several players are involved in tax disputes.
- Over the last few months, KRA has turned vicious in its tax raids.
- The dispute in the other three appeals was with regard to classification of pineapple-based wines.
Keroche Breweries has been slapped with a Sh9.1 billion tax bill after losing a five-year legal battle with the taxman.
The decision could cripple the Naivasha-based brewery which was counting on the tribunal to spare it from the tax demand by the Kenya Revenue Authority (KRA).
Over the last few months, KRA has turned vicious in its tax raids.
KRA will now have the last laugh, having been allowed to collect the Sh9.1 billion in taxes 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 was not a distinct product from Crescent Vodka since Vienna was produced by diluting Crescent Vodka and the process did not amount to manufacture.
“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 statement.
“Compounding of spirits also amounted to manufacture of a new product within the definition of Customs & Excise Act, CAP 472 (now repealed).”
The dispute in the other three appeals was with regard to classification of pineapple-based wines.
Keroche had argued that what they produced were fortified wines which should be classified under HS Code 22.04 which attracted lower excise duty rate of 40 per cent.
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, it 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 beverages industry where several players are involved in 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.