KRA in Sh516m dispute with Coke over US adverts

Coca-Cola soda at a grocery store. FILE 

By GALGALLO FAYO, gfayo@ke.nationmedia.com

In Summary

• Coca-Cola Kenya appeals against decision to pay charges on adverts commissioned by parent company.
• The local franchise of the beverage giant is locked in a separate suit with KRA over a Sh5.6 billion tax bill.

The Kenya Revenue Authority is locked in a legal battle with Coca-Cola over a half a billion shilling tax on advertisements running locally, but produced by the beverage’s parent company in the US.

Coca-Cola’s Kenya office on Tuesday appealed a tax tribunal decision that rejected its bid to overturn KRA’s demand for Sh516 million as VAT on the advertisements.

The beverage giant reckons that the adverts produced by the parent company do not attract tax because they were commissioned and benefited the Atlanta-based Coca-Cola Export Corporation.

But KRA says that the owners and entity that commissioned the adverts are immaterial in the dispute, and the publicity information helped grow sales of local bottling firms that deal in Coca-Cola products.

The tax man’s position was supported by the tribunal that issued its verdict on November 26, prompting Coca-Cola to move to the High Court to reverse the decision.

“There is an ultimate aim behind the marketing service that the people should be made aware about brand name of a product, and if they are aware of the brand name of the product associated with export (parent company) which is bottled by the local companies under licence,” said the tribunal.

“As earlier stated, what is material is the place of use or consumption of the service; for if it is physically used or consumed in Kenya, it is subject to Kenya VAT.”

However, Coca-Cola Kenya reckons that it has not benefited directly from the profit made by the local bottlers and thus its aim was only to increase brand awareness and nothing more. The court documents indicate that Coca-Cola has seven bottling firms in Kenya.

The local franchise of the beverage giant is locked in a separate suit with KRA over a Sh5.6 billion tax bill.

The franchises allegedly ignored a review of taxation laws that required soft drink makers to pay excise duty on costs incurred during washing and sanitising of returned bottles.

Four local Coca-Cola franchises moved to court arguing that the bottles belong to them. The law was changed in 2010 in favour of beverage manufacturers who use returnable bottles, but KRA said Coca-Cola never paid the tax on the cost that comes with maintaining the bottles between 2006 and 2009.

The court last year ruled in favour of KRA, directing Coca-Cola’s local franchises — Mount Kenya Bottlers, Rift Valley Bottlers, Nairobi Bottlers, and Kisii Bottlers — to pay the taxman Sh5.6 billion for tax arrears, penalties and interest. The bottlers appealed the decision.