‘We have no incentive to avoid taxes’

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"There has been no forceful land acquisition by us anywhere," says Karuturi.

Millenium Post | 28 April 2014

AFRICA RISING

‘We have no incentive to avoid taxes’

Ruchi Ahuja, New Delhi

Sai Ramakrishna Karuturi, chairman and managing director Karuturi Global Limited, refutes all allegations.

Why and how did Africa happen? What convinced you into making such large scale investments in the region?  

Having been in the rose cultivation and export business since 1993, we were facing limitations in growth in India. Freight costs from Africa were 35 per cent cheaper than India as India taxes aviation quite heavily. (Air turbine fuel was taxed at 80 per cent and landing costs in Indian airports was $10,000 versus Heathrow at $1,000 for an equivalent 747) one 747 Boeing costs $2,00,000 from Nairobi or Addis versus $2,75,000 from India. We need 5-6 sorties in a week). Land prices were getting impossible and contiguous land for expansion was a herculean tax. India was doing well and that meant labour supply was tough. Young women did not want to work in the farms but preferred garment factories. NREGA did not help either. Overall cost competiveness of India for this kind of activity was not what it used to be. Several managers of ours had moved to Africa and came back with good tales. I went to Africa on a sabbatical in 2004 May and what I saw was impressive. We invested a modest 20 lakh and lost it all to a local partner of dubious means. Licking my wounds, I went all over again with fresh investments in 2005 and have enjoyed great success.

Share with us briefly about the stakes and magnitude of Karuturi global in Ethiopia and in Kenya in terms of land, employees, turnover, tax liability etc. 

Karuturi employs a little under 10,000 people in both countries put together. Kenya has 4,230 employees. We own 500 acres land in Kenya along the lake Naivasha, 100 Ha and 300 ha in two locations in Ethiopia for the rose business. The Agri initiative has 1,02,700 ha of land. Our sales have been in the region of 650-750 crores and profits in the 125-150 crore range. Our financials are available on our web page. Ethiopia has given us a seven year tax holiday and in the case of Kenya we are subject to the full rate of tax. We are audited by Deloittes and our transfer pricing policy and audit is done by a firm of equal repute, GT. The Kenya government has three main hard currency earners. Horticulture, tea and tourism. Transfer pricing is a new and esoteric concept unheard off even in India 5-10 years back. We have been the guinea pig. We have no undisclosed income and the tax authorities have not found any expense that is not allowed. They have negotiated with us the price at which we sell to our marketing company. This exercise has been done in India on Oracle and IBM as well. Kenya Revenue Authority made an absurd claim for $20 million and settled for $4 mi. We bought peace as we have a business to run, it is not an admission of any wrong doing. Unilever had a similar experience between Kenya and Uganda sales. BIDCO, owned by Vimal Shah, the richest man in Kenya has also been slapped by a 900 million tax demand. If we have evaded taxes it is like saying Vodafone cheated the Indian tax payer 10,000 crores! India has a Double Taxation Avoidance treaty with Kenya. So why will  we avoid  taxes  in  Kenya as we get credit for all taxes paid for our Indian Tax Liability? We have no incentive to do so. 

There has been a lot of talk about the malpractices that Karuturi has been into in Kenya –  tax evasion, transfer pricing and false invoicing etc. Please share what is the reality behind such accusations?    

Answered above, malpractice? We run a school for 2,200 students and it is considered the best in the district with an over 65 per cent conversion rate to University. We run a 80 bed hospital with surgery, x-ray, ultra sound, eye and dental clinics apart from a morgue. We have zero per cent infant mortality rate and 100 per cent success in the over 1,000 deliveries in a year. We run a premier football team and also are sponsors of the Kenya national cricket team. We do not pay bribes and never will. This has caused enmity as we fought the tax claim on merits but did not pay anybody anything.

What about the allegations towards the unpaid wages, forceful land acquisition and exploitation of farm workers in Ethiopia.?

There has been no forceful land acquisition by us anywhere. This has been validated by the Donors Group of UK, USA, Germany etc. It is called the DFID report. The allegations on unpaid wages is related to unlawful demands of increments. Which we have refused to pay. We have a union with a CBA and we award increment of seven per cent but they want 20 per cent.  We have zero tolerance policy on sexual harassment and other forms of unfair treatment of our workers and other members of the company. We have been consistently awarded the Best workplace category by USAID, Awarded as the best Agri business by Corporate Council on Africa (A group of the top 100 US companies in Africa including GE, Coke etc)

Do you think that the Ethiopian or Kenyan governments law, taxation bodies are fair to foreign investors?

Ethiopia is very honest and clean. Kenya is very corrupt and opaque. Neither are unfair to foreign investors but investors also need to behave in a responsible manner.

Further to this, any words of caution/advice to Indian corporates/entrepreneurs entering Ethiopia, Kenya and other African countries, based on your experience? Please give us illustrative points here, if possible. 

Africa is the future, read the Mckinsey study on Africa. Agriculture, infrastructure, FMCG, real estate and logistics are areas of key growth. Indian and Chinese enterprises have both done very well in East and West Africa. Almost all banks are managed by Indian professionals. The limiting factor in Africa is access to capital and poor infrastructure in certain place. Law and order can also be an issue in certain places. 

What according to you is Indian government’s reaction towards the trouble firms like yours run into, abroad? 

The Indian government and the Indian Ambassadors in Kenya and Ethiopia have provided extensive and meaningful support. Visiting ministers have all gone out of their way to promote and protect Indian business interests. 

What is your action plan to undo the bad name your company has been labeled with, or overcome the adverse publicity?

We are sure we will stand vindicated from this smear campaign. We fought and survived many a battle in the past. I would be worried if the KRA calls me a tax evader not the Standard newspaper, if the ministry of labour and social welfare accuses me of unfair labour practice not if the Star or the Union chief Atwoli says so.

Original source: Millenium Post
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