A day before raiding Keroche Breweries, the Directorate of Public Prosecution (DPP) posted on its social media pages announcing its intention to charge Keroche Breweries CEOs Tabitha Karanja and Joseph Karanja over tax evasion amounting to Ksh12.3 billion for VAT plus Ksh2.1 billion as excise duty, totaling to Ksh14.4 Billion.
A VAT charge of Ksh12.3 billion suggests Keroche Breweries had a turnover of Ksh76 billion. A day later in court, the numbers presented by the prosecution were inverted as VAT claim was changed to Ksh2.1 Billion while the excise duty claim went up to Ksh12.3 billion.
Following Kahawa Tungu‘s independent investigation, it has emerged that the director of public prosecution Noordin Haji took only a day to peruse through the file presented to him by the Kenya Revenue Authority (KRA), and then proceeded to announce prosecution in the second day.
The statement has since been deleted and replaced with an edited one that rhymes with charges in court.
In the period mentioned by the DPP, January 2015 to June 2019, Keroche’s total turnover of Ksh18.5 billion yielded a tax remittance of Ksh7.2 billion. Basically 40 percent of what Keroche Breweries’ produced went to Government as tax.
In addition to what the DPP in collusion with the KRA termed as evaded tax, this would amount to Ksh22 billion. If Keroche Breweries is supposed to pay the alleged Kshs 22 Billionfor the period January 2015 to June 2019, simple math would mean that Keroche Breweries’ turnover must have been over Ksh80 billion.
Currently, Keroche Breweries manages a 1.1 million hectolitres of beer, state-of-the art brewing facility valued at Ksh8.5 billion that employs 850 people directly and thousands indirectly. Keroche’s current tax remittance totals approximately Ksh2 billion annually.
Keroche case is only a glimpse of how Kenyan companies are strangled to death by government agencies that are supposed to protect them.
“To the ODPP, our take is simple. Please conduct proper investigations. It takes years, decades, generations to create credible businesses that provide jobs, create wealth and grow economies. Entrepreneurs make sacrifices and take serious risks to grow the businesses that have added value and wealth to our country. Rush decisions based on improper investigations may be populist but they damage more than what they achieve. One of the casualties of these rush decisions will be Agenda 4,” says Keroche CEO, Tabitha Karanja.
It also raises questions why the new KRA commissioner general James Mburu and the DPP decided to prosecute a case that is before the Tax Appeals Tribunal (TAT); an institution mandated by law to handle tax disputes such as that of Keroche’s Viena Ice ready-to-drink vodka.
According to a letter from KRA to Keroche in our possession dated July 22, 2015, KRA recommended that the tax dispute be “addressed from a policy perspective through engagement of the National Treasury and Parliament”. This followed a disagreement between the two on the computation of tax on Keroche’s Viena Ice.
KRA used section 117 (1) (d) and the Fifth Schedule of the Customs and Excise Act Cap 472 to compute the taxes, which specifies that the excise duty for spirits is on the higher of Ksh120 per litre or 35 percent the ex-factory selling price.
However, Keroche said that since Viena which has 312ml of distilled water and 188ml of Crescent Vodka for a 500ml package should not be taxed as a whole, but only the 188ml of vodka should be taxed.
“Viena Ice is packaged in quantities of 500 ml in which the ratio of water to vodka is 312ml of naturally distilled water and 188ml of Crescent Vodka. As a result of being produced from an excisable product, Viena Ice is entitled to an excise rebate under section 149A of the Customs and Excise Act CAP 472 of the excise duty previously paid,” argued Keroche in appeal document is our possession.
The dispute started in 2014, with KRA demanding a backdated to 2007 for the 312ml water to attract Ksh94.9, translating to paying more tax than what is charged on any other alcoholic beverage.
“We have religiously remitted taxes on a monthly basis for the last nine years based on the 188ml Crescent Vodka, which is what is in the 500ml Viena Ice ready-to-drink vodka. We have never charged nor collected any tax on the 312ml naturally distilled water added in the 500ml Viena ready to drink Vodka because this is not applicable,” Keroche said on August 13 in a letter to KRA commissioner general, a week before the prosecution order was issued by the DPP.
Following the dispute, KRA directed that Keroche change the formulation of their Viena Ice Ready to Drink vodka from 13.5 percent v/v (vodka concentration) to 10 percent v/v, which the company says has drastically affected the sales of the product with by 50 percent drop.
On August 23, a day after arrest and arraignment in court, Tabitha and Joseph Karanja were released on Ksh10 million and Ksh2 million cash bail respectively.
After their release, Tabitha thanked Kenyans for standing with her. During their arrest and arraignment, Kenyans online ganged up to defend the investors after reading malice on DPP’s side.
“We would like to take this opportunity to thank all Kenyans for the overwhelming support you have shown for Keroche Breweries Chairman Joseph Karanja and CEO Tabitha Karanja following last week’s unfortunate events. Even if I live for 100 years, I’ll never be able to thank you enough for the heartfelt and humbling messages of support and encouragement,” said Tabitha.
“With the support that you have shown and with the burning commitment in the Keroche fraternity to build a company and innovate products that can compete with the world, we promise that we can and shall continue to inspire Kenya, Africa and the World with the belief: IT CAN, IT SHALL, IT MUST BE DONE,” she added.