Corporate Titan Tabitha Karanja Speaks On The Tax Battle Between Keroche Breweries And KRA

We wish to start by commending the Jubilee Government for the commendable work done during its two terms. This is evident from the peace the country has enjoyed and the big-ticket projects completed on the infrastructure front not forgetting the growth of the economy from a low of 3 percent to about 6 percent.

However, mid-stream the second term of the government, an unprecedented global pandemic in the name of Covid 19 hit the whole world. To be precise, the first case of Covid 19 was diagnosed in Kenya in March 2020.

The effects of the pandemic were not only on the loss of lives but serious erosion of the business environment leading to the closure of businesses, loss of employment, and the attendant income among other effects.

The government put some temporary measures in an attempt to mitigate the effects of Covid 19. Some of the measures included a reduction in the standard VAT rate from 16 to 14 percent, a Corporate tax rate from 30 to 25 percent, and pushing up the minimum taxable threshold for individuals for PAYE purposes. Though the gesture was appreciated, it did not reduce the pain caused by the pandemic to the expected level.

The above measures were withdrawn in 2021 when the pandemic was still on the increase. As we got into 2022, the cases of Covid 19 started going down but the post-Covid 19 effects are being felt harder. The effects are being aggravated by the current political climate as we get closer to the August 2022 General Elections.

The government should re-evaluate the post-Covid effects and the impact they have on the different sectors of the economy in order to formulate policy measures that will rejuvenate the players and by extension the economy. Without re-inventing the wheel, the government can borrow a leaf from the west where businesses have been extended grants, tax breaks, moratoriums, and low-interest loans.

The reality of Covid 19 pandemic impact; case in Point-Keroche Breweries Ltd:

While the above summary sounds abstract, the economic effects have severely affected most local enterprises since they have not been fully cushioned by the government policies through its agents who in as much are exercising their mandates should do so with consideration of the realities on the ground.

We strongly believe our struggles mirror the sentiments and struggles of many other local businesses that are suffering in silence without an avenue or platform to air their grievances unlike multinationals cushioned by their parent companies/ countries.

Keroche breweries appreciate the support accorded by the government through its agent the Kenya Revenue Authority (KRA), who are mandated to implement the tax policies and collect taxes on behalf of the government.

However, we wish to highlight the run-offs with KRA leading to the closure of the company’s factory at Naivasha. The ground for closure was due to outstanding tax arrears of Kshs.322 Million that accrued from February 2021.

Failure to be up to date on the payments was explained to KRA as low business leading to poor cashflows that could not fully meet all the cash obligations of the company (taxes, utilities, salaries, suppliers, etc).

We subsequently entered into a proposed payment plan with KRA but we could not manage to honor the same due to frequent interruptions by KRA:

• On 7th December 2021 KRA closed the factory and further issued agency notices to 36 Banks in Kenya. This completely collapsed all our business operations since we could neither produce sale nor access any financing from any of the banks to assist in settling the taxes.

• We started negotiating for a payment plan and we requested 24 monthly installments based on our financial projections which KRA rejected and insisted on six monthly installments. We proceeded with their proposal although we knew it was unrealistic since we wanted to have our plant re-opened and we were desperate to take our products in the market during the festive season.

• On 22nd December 2021 KRA re-opened, but unfortunately, the earliest our products could reach the market was on 27th December 2021. We only managed to sell for three days till the end of the year but KRA was on our case demanding the arrears according to the payment plan. We remitted Kshs. 10 Million which was available in our accounts then; which to them was insufficient.

• On 10th January 2022 KRA again shut down the factory and we re-negotiated the payment plan (24-installment) which they still rejected.

• On 15th January 2022, after another round of back and forth discussions, KRA re-opened the plant. For us to go into production we needed revenue stamps which we had to apply and it took a further one week to get