Court bars KRA from pursuing Kenya Breweries in an Sh8b tax revisit battle

High Court in Nairobi has barred Kenya Revenue Authority from pursuing Kenya Breweries Limited (KBL) in an Sh 8.2 billion tax battle triggered by Treasury Cabinet Secretary Ndungu's revisit of tax waivers by the former administration.

Justice Mugure Thande temporarily froze the implementation of the Ndung'u directive until the case is heard and determined.

"I am satisfied that the application has met the test for the grant of conservatory orders at this ex-parte stage. Accordingly, prayer two of the application is hereby granted," she ruled.

KBL sued Ndung'u in a battle over Sh 8.2 billion tax abandoned by the previous government on Senator Keg beer.

KBL, a subsidiary of East Africa Breweries Limited (EABL) states in its case filed before the High Court that Ndung'u has illegally revisited the waiver that happened 19 years ago.

The brewer's lawyer Kamau Karori told the court Friday that Ndung'u instructed Kenya Revenue Authority to pursue KBL after revoking a guarantee given in 2021 by the President Uhuru Kenyatta administration that the taxman would not pursue the brewer if it paid Sh 3.5 billion to the government.

In 2004, the then Finance Minister David Mwiraria reached out to KBL, with a request that the firm develops a low-cost clean alternative to illicit brew.

The headache was that men and women were dying in hideouts while consuming killer brews.

According to Kamau, KBL procured a manufacturing plant worth Sh 1 billion and introduced Senator Keg in 2004.

In order to ensure that the product was available to low-income earners, the government opted to give an excise duty remission for alcohol manufacturers who used local raw materials for the production of affordable and safe alcohol.

However, between 2015 and 2016 the government changed the remission rate from 50 percent to 90 percent. It again changed in 2017 to 80 percent.

Following the changes, the court heard that KRA demanded Sh 22 billion from KBL. This resulted in a battle before the Tax Appeals Tribunal.

The senior lawyer explained that KBL and KRA engaged in talks and it was agreed that KBL pays Sh 3.5 billion.

"Although the petitioner considered itself entitled to a complete waiver or abandonment of the entire amount demanded by the third respondent it decided to make a good faith offer to pay part of the taxes demanded for the purposes of an amicable settlement. The Petitioner sent its proposal to pay the sum of Sh 3.5 billion in full and final settlement of the taxes demanded by the 3rd Respondent through a letter dated November 24, 2020," said Kamau.

He narrated that they continued with the talks, KRA agreed to have Sh 3.5 billion as settlement KBL had not collected taxes from consumers.

On the other hand, KBL withdrew its case after the then CS approved the deal.

"It is clear from the foregoing that in abandoning the taxes and requiring payment of Sh 3.5 billion, the second and third respondents had considered the grounds raised by the petitioner in accordance with Sections 37(1) and (2) of the Tax Procedures Act. The approval for abandonment of taxes and the abandonment were thus lawful and in accordance with Article 210(1) of the constitution," said Kamau.

KBL accuses Ndung'u of acting on a political statement that former President Uhuru Kenyatta's administration had given waivers and all must now pay what they had been forgiven.

The court heard that there's no law that the CS has anchored his decision on.

At the same time, the firm claims that Ndung'u has turned a deaf ear to its plea for talks over the same. According to the firm, the CS acted beyond his powers by revisiting Ukur Yattani's decision.

"The second respondent purported to act in furtherance of political statements to the effect that the previous regime wrongly granted waiver or abandonment of taxes. By acting on the basis of or in furtherance of political considerations, the second respondent took into account irrelevant and improper factors. The resulting decision is therefore bad in law and ought to be quashed.," he continued.

According to Kamau, there is no law requiring or giving a sitting CS to review or revoke a decision made by his or her predecessor.

The lawyer said: "A decision once made in the exercise of ministerial authority cannot be reversed just because a subsequent minister is the of view that he would have decided otherwise."

KBL stated that investors will no longer be able to believe in or trust decisions, and policies made by the Government if Ndung'u's decision is to stand.