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Reprieve for KBL as Tusker Cider spared heavy taxation

BUSINESS
By Dominic Omondi | August 10th 2021

Beer processing chain in action at the Kenya Breweries Ltd (KBL ) Nairobi plant.[Elvis Ogina,Standard]

Kenya Breweries Ltd (KBL) has been spared a heavy import duty on its Tusker Cider brand by the Tax Appeals Tribunal.

The tribunal ruled that the apple fruit concentrate, which is the main ingredient used to manufacture the alcoholic drink, does not attract 25 per cent import duty as demanded by the Kenya Revenue Authority (KRA).

Instead, importation of the concentrate is classified as edible preparation attracting a duty of 10 per cent.

The taxman had argued that the concentrate was classifiable under the tariff of “beverages, spirits and vinegar”, which attracts a duty rate of 25 per cent. This would have seen the retail price of the alcoholic beverage go up, denying the listed company much-needed revenue from one of its newest beers.

 “The appellant (KBL) in its short reply submitted that what was in dispute in this appeal was apple concentrate and not alcoholic fermented apple plus. The tribunal concurred with the position taken by the appellant and declines the respondent’s (KRA’s) invitation as doing so will amount to engaging in speculation,” read the ruling in part.

The ruling by a three-bench tribunal was delivered on June 25, 2021. According to KRA, KBL had been importing alcoholic fermented apple with a similar chemical composition to apple concentrate. This product, argued the taxman, had been classified under the heading of “beverages, spirits and vinegar,” with the brewer paying 25 per cent duty.

KBL had emphasized that KRA ought to have considered the purpose, intended use, and chemical composition of the product in determining the class under which it falls.

The taxman also insisted that because the apple concentrate had 14 per cent alcoholic content, a factor that was critical in classifying the tax tariff.

However, KBL, a subsidiary of East African Breweries Ltd (EABL) argued that while the apple concentrate had an alcoholic percentage of up to 14 per cent, it was not a beverage that could be offered for human consumption in that state. It thus could not be classified under “beverages, spirits and vinegar.”

The tribunal said the apple concentrate that KBL intended to import for manufacturing Tusker Cider, was an alcoholic beverage.

KBL launched Tusker Cider in 2016 in what was aimed at taking advantage of a burgeoning market of affluent younger consumers, who drink more amid slowing global alcohol consumption. In September 2019, the brewer unveiled yet another cider drink dubbed Sikera Apple as part of its plans to grow sales among female consumers.

KBL recently increased the prices of several of its brands, noting that the adjustment was prompted by an increase in the cost of doing business, including an increase in excise duty that they did not pass to the consumer.

The review by the region’s largest brewer will see the prices of some popular brands such as Gilbeys, White Cap, Kenya Cane and Johnnie Walker go up as it tries to balance between growing revenues and keeping costs down.

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