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Sh322m tax bill threatens to end Keroche Breweries 25-year party

BUSINESS
By Patrick Alushula and Antony Gitonga | Mar 5th 2022 | 4 min read

Keroche CEO Breweries Tabitha Karanja flanked with her staff addressed the press on March 4, 2022, after KRA closed down the Naivasha based company over a Sh332m tax row. [Antony Gitonga, Standard]

It was founded on love and Sh500,000 as Keroche Breweries. That was in 1997, the year government lifted price ceilings on alcohol.

While the love story between Joseph and Tabitha Karanja lives on, a Sh322 million tax arrears demand is threatening to rain on what would have been the silver Jubilee party for Keroche come August.

It would have been a good moment for the couple to toast to the fruits of an idea that was born right in their home, in Rift Valley, on the edge of the Nairobi-Nakuru Highway as a fortified fruit wines brewery.

But not when Kenya Revenue Authority (KRA) has shut Keroche Industries’ plant. Today will be day 33 since the Sh5.5 billion plant last brewed anything.

Over two million litres of beer in the fermentation tanks, valued at about Sh512 million, is stuck in the premises. Karanja is fearing for the worst.

“This has drained all our resources. It is a bad position to be in,” says Ms Karanja, the CEO of the firm that has been focusing on the middle and low-income earners. “If nothing is done in the next seven days, we will be forced to drain down all the beer and lay off over 250 direct employees and thousands within our nationwide distribution network.”

Fearing that nothing will indeed be done, she wants President Uhuru Kenyatta to personally step in and save the firm, which she says used to pay KRA Sh200 million monthly before the Covid-19 pandemic struck.

Permanently shutting down Keroche will mark a sad end to a classic story of a firm that has for close to 25 years managed to take on multinationals including East African Breweries — a Goliath that has towered over the Kenyan beer and whose subsidiary Kenya Breweries is celebrating its centenary this month.

If it happens, where will imbibers get Summit Lager, Summit Malt, X Double Strength Beer, Valley Wines, Crescent Whisky, Crescent Gin, Crescent Vodka and Viena Ice?

But where did it all go wrong for a firm that says it has contributed over Sh30 billion in taxes to the Exchequer since inception? How did Keroche accumulate Sh322 million tax arears in under a year?

Were there any end-time signs for a brewer whose CEO is now juggling between saving her business and wooing voters for the Nakuru Senate seat come August 9?

Ms Karanja says the downfall story begins in mid-March 2020 when Kenya recorded the first case of Covid-19 infection, setting into motion unprecedented disruptions such as total closure of bars for months.

“We strongly believe our struggles mirror the sentiments and struggles of many other local businesses that are suffering in silence,” she says.

According to Karanja, many local firms are still struggling, unlike multinationals that have been cushioned by their parent companies and countries.

The Kenyan government offered its own relief measures—like lowering corporate tax from 30 per cent to 25 per cent.

But Karanja says, while the gesture was appreciated, it did not reduce the pain caused by the pandemic to the “expected level.”

The brewer has suffered poor cash flows, making it difficult to fully meet all the cash obligations including taxes, salaries, supplies and utilities like electricity.

This has triggered a battle of survival even as KRA demands payment of tax arrears.

When KRA came knocking in February last year, the firm entered into a proposed payment plan but “we could not manage to honour the same due to frequent interruptions by KRA,” according to Karanja.

The breached payment plan saw KRA shut the Naivasha-based factory on December 7 and issue agency notices to 36 banks.

“This completely collapsed all our business operations since we could neither produce, sell nor access any financing from any of the banks to assist in settling the arrears,” says Karanja.

Shutting operations in December, when sales usually go up in line with end year and New Year festivities, meant Keroche was not going to make money.

While it negotiated for a 24-month resettlement plan, KRA only granted six months. That was to mean paying out Sh54 million monthly—a figure Karanja terms unrealistic. In short, that was just a postponed problem. KRA finally reopened the plant on December 27. Factoring in logistics, Keroche’s products could only reach the market on December 27. It was a peak season missed. 

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