The Kenya Revenue Authority (KRA) has threatened five top banks with multi-billion penalties because of their dealings with Keroche Breweries.
The Naivasha-based brewer found itself in hot soup after losing six petitions it had tabled before the Tax Appeals Tribunal in 2015 and 2017 respectively. The taxman won the case meaning Keroche Breweries Limited now owes KRA Ksh 9 billion in tax arrears.
KRA has now given the banks up to April 11 to transfer cash in Keroche’s bank accounts to the agency’s coffers. The taxman claims that the five banks will pay the Ksh 9 billion individually if they fail to comply with the transfer order.
The banks threatened by KRA include Absa Kenya, Equity Bank, Diamond Trust Bank, Cooperative Bank, and Standard Chartered.
“I hereby declare you to be an agent of the above taxpayer (Keroche) and require you to pay me Sh9.1 billion. If without reasonable cause you fail to comply with this notice, you shall be personally liable for the amounts specified,” reads the notice from KRA to the five banks.
Keroche claims that it has been unable to transact on its accounts after the KRA sent the banks the agency notices that technically appoints the lenders as agents of the taxman. KRA is allowed to take the aggressive action by the Tax Procedures Act.
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The Tax Procedures Act empowers KRA to seek taxes directly from third parties like banks, employers and suppliers as well as seize and auction property to recover unpaid tax. The Act also gives the taxman powers to freeze the tax defaulter’s property transactions and ultimately auction the assets to recover the unpaid tax.
In the case of Keroche, its main property which faces this risk is its brewing plant in Naivasha where it manufactures the Summit Lager and Summit Malt beers.
KRA is also allowed by the Act to post its staff to businesses owned by the tax defaulter, deploying them to the accounts departments, to recover unpaid taxes.
The taxman has since threatened to ground Keroche Breweries operations by denying the firm tax stamps affixed to beer, wines and spirits bottles.
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In three of the appeals filed by the brewer before the Tax Appeals Tribunal, the contention was the manufacturing process of Vienna Ice Vodka. The brewer argued that the Vienna Ice was not a distinct product from Crescent Vodka since Vienna Vodka was produced by diluting Crescent Vodka which 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.
In the other three appeals, the contention was with regard to the classification of pineapple based wines.
The brewer had argued that what they produced was fortified wines which should be classified under HS Code 22.04 which attracted a lower excise duty rate of 40%. Their position was that the classification was specific for any fortified wine.
On Friday afternoon, troubled Keroche Industries secured temporary orders stopping the taxman from recovering Sh9.1 billion in taxes from its accounts. But KRA says it has not received the orders.
Keroche, which started by making spirits and wines in 1997 before diversifying into beer in 2008, has termed the KRA’s announcement to enforce the tribunal’s decision premature.