The history of Keroche Breweries’ unending woes since 2003
The Tax Appeal Tribunal, an institution mandated by the law to handle tax disputes has ordered Keroche Breweries to pay Sh9.1 billion tax to the Kenya Revenue Authority after its Naivasha-based brewery lost the appeal to the taxman. The tax battles are centered on the manufacturing process of Vienna Ice, in which the brewer had opposed the excise duty charged on the products arguing that the Vienna Ice brand of Vodka was produced by diluting Crescent Vodka, a process that did not amount to manufacturing in any way.
CEO Tabitha Karanja claimed that the Kenya Revenue Authority tax rates were unfair as it implied that the water added in the Viena Ice brand of Vodka attracts Kenya shillings 221 per litre, an amount that translates to paying more tax than what is charged on any other alcoholic beverage. Keroche mixes 180ml of Crescent Vodka with 320ml of naturally distilled water to come up with a 500ml drink, a process the company still insists is not manufacturing.
KRA’s position was that HS code 22.04 was reserved for wines based on grapes and the Keroche’s fortified wine was purely fermented pineapple as such is to be classified under HS Code 22.06 which is for any other fermented beverage. HS code 22.06 attracted a higher excise duty rate of 60%. According to KRA, Keroche Breweries Limited was involved in the compounding of spirit which amounts to manufacture within the meaning in Excise Duty Act, 2015 and Customs and Excise Act, CAP 472 (repealed)as such Vienna Ice was a distinct product for which Excise Duty was payable.
Keroche Industries woes started way back in 2003 when the government accused the company of manufacturing and selling substandard alcoholic drinks. The Kenya Bureau of Standards refused to issue stickers to authenticate its alcoholic brands leading to shut down of its manufacturing facility after the government revoked its liquor license. Tabitha Karanja suspected that this was sabotage coming directly from its competitors.
In 2007, the government decided to increase excise taxes on wines. While this caused an increase in prices of Keroche’s fortified wines, its top competitor EABL had effectively lobbied the government to receive a zero-tax rating on its Senator beer. Keroche wines targeted low-income consumers and with the tax increase comes price hikes. Tabitha Karanja knew their consumers would no longer be able to buy the products. Mrs. Karanja was left with two options, one was to lobby the government for a repeal of the tax and another was to abandon and forget about the wine business for good.
Tabitha Karanja contemplated entering the Kenyan beer market, she was hesitant on whether she should continue to target the low- to middle-income consumers with their company’s cheap liquor or shift focus toward the upper-middle- and high-income consumers, a class of people who were EABL’s longtime customers. Keroche made a U-turn and invested in beer, opened its first plant in October 2008 with the flagship Summit Larger brand, a move that would later end 80-years of monopoly in the country’s alcohol industry by multi-national East Africa Breweries Limited.
In August 2015, Keroche was omitted in the list of excise duty compliant firms. The manufacturer had obtained a court order to continue operating pending a hearing. In 2016, it was locked in another dispute with KRA over Sh1 billion tax bill on its ready-to-drink vodka. In 2019. Keroche was apprehended again by KRA when the Director of Public Prosecution Noordin Noordin Haji issued an arraignment notice for its CEO Tabitha and her husband Joseph Karanja accusing the company of evading payment of tax totaling to sh14,451,836,375.
Founded in 1997 as a small winemaker targeting low-income earners, Keroche continues to pride itself as the first local large-scale brewer in the country. Despite facing numerous challenges, the company continues to fight for a bite in the country’s alcohol market. Currently, Keroche Breweries manages a 1.1 million hectolitres, state-of-the-art breweries facility valued at Sh8.5 billion with over 850 employees.