How MPs and Githeri media were bribed to kill tax evasion probe against EABL?

Today, this site dissects the beverage industry in Kenya and Diageo privately managed and public owned EABL(east Africa breweries limited) is on the writers’ table ready to be cut through.

Just the other day, KRA was on the neck of a locally owned Keroche breweries company about their tax evasion case that we published an article on what Tabitha Karanja was trying to hide behind the prospective that the company was to be closed down.

East Africa Breweries(EABL), a publicly-traded brewer, is still under investigation by two parliamentary committees for tax fraud, asset looting, and the purge of Kenyan managers.

When the petition was filed in the National Assembly on August 25, 2016, Then Deputy Speaker Dr Joyce Laboso (More details here on the Hansard Report) ordered the corporation to be examined by the house committees on finance trade and labour and social welfare.

The report highlighted the late Gem MP Jakoyo Midiwo’s concerns that EABL was massively engaged according to him in tax evasion that were going under the nose of KRA.

“THAT, the EABL’s continued existence as a going concern in the short-term is questionable since the balance sheet is wanting. The company has been engaging in creative accounting to deceive the public and the regulator. For instance, the current assets of the EABL as of 30th June 2015 were valued at Kshs25 billion against the current liabilities of Kshs24 billion indicating a possible cash flow and liquidity challenges. Indeed, despite the fact that for the same period the non-current assets were valued at Kshs42 billion against the non-current assets of Kshs28 billion, the company was experiencing huge liquidity problems leading to massive borrowing to finance other debts and hoodwinking the regulator,” Jakoyo Midiwo said in his pending petition in the National Assembly.

The late Gem MP might have been written the petition because what Diageo has been doing in Kenya is to offer service threats to all those that they consider being against their way of doing business. Where is the competition authority of Kenya?

Take for instance, a source confidential to the information and daily dealings of diageo told this writer that the EABL has been using legal professionals to scare or treaten any print or mainstream media that would dare talk about the perceived buried tax evasion story.  This is after an alleged bribery negotiation fails between the designated brokers.

But we must have one or two Kenyans that can stand their guard and protect the public against all financial or legal intimidations, which in this case are less informed, about what is happening and how is all these is going to affect the economy and the whole alcohols and beverage industry in Kenya.

Part VI of the Act (Sections 55 to 70) is enforced by the Consumer Protection Department. The competition authority of Kenya’s primary duty is to examine complaints about false or misleading statements, unethical behaviour, and the provision of hazardous, faulty, or inappropriate items.

According to Jakoyo Midowo’s pending petition, the delay might be related to massive bribe allegations faced and reported against the most profitable brewer in the country right now.

“THAT, the EABL has been engaging in transfer, pricing and tax evasion practices through its biggest shareholder Diageo PLC with the aim of transferring profits to the United Kingdom (UK), which has favourable tax regimes, hence irregularly denying the Government tax revenue. Even if Section 85 of the Tax Procedures Act, 2015 gives the Kenya Revenue Authority (KRA) powers to investigate pricing arrangements between local units of multinationals with their parent companies and overturn any that it deems to have been structured with the intention to avoiding tax, the Commissioner-General is yet to initiate any investigations. THAT, a glance at the financial statements of EABL for the 2014/2015 Financial Year can also shed light on the malpractices relating to tax evasion” Jakoyo stated. 

In June 2020, Kelvin Wanderi Kinyua petitioned the National Assembly to order forensic investigations into the beer giant’s financial dealings to protect local shareholders and safeguard the public interest.

He has accused the company of doctoring its accounts to give a false impression that they are healthy, selling off various assets both at the headquarters and the depots and packing its top echelons with foreigners to the detriment of locals.

“For instance, the current assets of EABL as at June 30th, 2015 were valued at Sh25 billion against the current liabilities of Sh24 billion indicating possible cash flow and liquidity challenges. Indeed, despite the fact that, for the same period the non current assets were valued at Sh42 billion against non current liabilities of Sh28 billion, the company was experiencing liquidity problems leading to massive borrowing to finance other debts and hoodwink the regulator,” he says.

Kinyua says in his petition that due to the liquidity problems and seeming desire to company, the management has been hurriedly offloading its fixed assets.

“In particular, EABL sold its 15 acre land at its Ruaraka headquarters and its glass bottle manufacturing subsidiary (Central Glass Limited). The company has also been selling properties and assets including in Kisumu, Mombasa, Nairobi and the Thika Depot. For instance, during the year ending June 30^th 2014, EABL had a net revenue of Sh60 billion and Sh64 billion in the year ending June 30^th, 2015. However, the tax remitted to government was Sh3.5 billion and Sh4.6 billion for 2014, 2015 respectively. The amount of tax remitted to Kenya Revenue authority does not correspond with the company’s net revenue indicating a possible engagement in tax evasion practices in clear violation of Tax Procedures Act,” he says.

The petitioner also draws the attention of parliament to the composition of the company’s senior management which he says is composed of foreigners and a few locals.

“In the last five years, the company has been involved in a deliberate scheme to replace Kenyans holding senior positions with foreigners. As an example, the Group Deputy Chairman, Group Managing Director and Chief executive, as well as Group Finance Officer are all foreigners. In addition, eight out of twelve members of the board are foreigners. The local management confirms that that most key decisions on investments, divestiture, procurement, hiring, and firing are made in Europe by its foreign investors in total disregard of local laws and without representation of local shareholders or the local human resource,” says the petitioner.

The petition, presented in parliament by then-Deputy Minority Leader Jakoyo Midiwo, also requested that the Capital Markets Authority (CMA) investigate the EABL’s operations in relation to financial statements and trading on the NSE.

Parliament should also direct the Kenya Revenue Authority (KRA) to conduct an investigation into the pricing agreements between the EABL and Diageo PLC. Diageo PLC, a global alcoholic beverage company located in London, owns 50.03 per cent of EABL.

Following intervention from top editors, at least two publications about EABL tax evasion case are believed to have killed the story, a source accoustomed to the information told this writer.

This site has also discovered that the CEO of another media githeri media directed that the accusations in the affidavit by Mr. Wanderi did not make it to public. Kinyua had also requested that the Kenya Revenue Authority review the EABL’s tax compliance in his affidavit.

The firm has also been disposing off its assets including land at its headquarters as well as the depots sparking fears it could be planning to scale down its operations in Kenya leading to job losses.

This site is among the few online outlets that picked up the story have managed to thrive through the intimidations that the EABl CEO has rained through local media outlets and blogs.