Delta Corporation Limited is in the process of appealing court judgements supporting the Zimbabwe Revenue Authority’s (Zimra) claim that the firm owes the taxman US$54,7 million.
The Ministry of Finance, Economic Development, and Investment Promotion has been forcing companies to pay taxes based on their earnings in local versus foreign currency.
However, due to the volatility of the Zimbabwe dollar since its reintroduction in June 2019, leading to it being scrapped in April for the Zimbabwe Gold (ZiG) currency, this tax requirement became challenging for firms.
In November last year, Delta disclosed that Zimra imposed extra income tax and value added tax assessments along with penalties and interest totalling US$54,7 million, which the company had initially settled in local currency.
Delta took Zimra to court over the bill to which the beverage manufacturer lost and is now appealing the judgement.
“As previously reported as at 31 March 2024, there were certain areas of disagreement regarding the currency of payment for certain taxes and the methods of splitting the taxes by currency for the period 2019 to 2021,” Delta said in its half year financial report for the period ended September 30, 2024, released last week.
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“The Zimbabwe Revenue Authority issued additional income tax and value-added tax assessments, including penalties and interest against group entities amounting to US$54,7 million.
“Zimra contends that these amounts should have been paid exclusively in foreign currency and the amounts originally paid to be refunded in the debased nominal values.
“Whilst the recent court judgments in our case and other similar cases support Zimra’s position on the matter, there are significant legal and factual issues still to be addressed.”
Delta said these considerations needed to be addressed as Zimra was empowered to collect any taxes it deemed due under its ‘pay now, argue later’ principle.
“The group had accumulated payments amounting to US$8,5 million as of 30 September 2024 in line with this principle and as per agreed payment plans,” Delta said.
“We believe any revisions to the payment plan will be rational, taking into account the financial health of the business and the fact that the principal amounts were fully paid in legal tender at the relevant periods, based on the best available interpretation of the legislation.”
Delta said that there were also engagements with authorities on trading off some financial instruments that could offset part of the final amount that becomes payable.
“There are still areas that require clarity and adjustment in the assessments raised,” the company said.
“While appealing certain areas of the assessments and the judgments, with guidance from tax experts and legal counsel, management continues to engage with Zimra and the government to find a workable solution that recognises the social contract among stakeholders,” Delta said.
“These assessments have a material impact on the group’s operations, if they materialise as per the extant assessments.
“At this stage, the board cannot estimate the likely outcome or timing of the resolution of these matters.
“An assessment will also be made on whether to change the accounting treatment of the assessments and the amounts paid so far.”
Delta has already paid US$20 million in sugar tax since February and is in the process of engaging the government over the tax.
The impact of the sugar tax on Delta is expected to be felt significantly in the beverage maker’s current financial year ended March 31, 2025, as the beverage maker paid US$142 million in taxes for its 2024 financial year.
Delta is on course to pay US$46 million in sugar tax to the authorities.
“The operating environment in Zimbabwe remains complex driven by the numerous changes to policies and an unstable currency,” Delta said.
“The beverages sector, in particular, and indeed the broader market, have been significantly affected by the sugar tax, the restrictions on the route to market and the strict enforcement of the use of official exchange rates for retail price determination.
“There is no clarity on whether government will adopt the recommendations to refine the tax policies that impact competitiveness and viability, such as the sugar tax and route to market regulations.”
Delta is also facing tax challenges with its Zambian subsidiary, National Breweries PLC.
“Similarly, Natbrew Zambia is challenging an assessment by the Zambia Revenue Authority relating to transfer pricing positions on royalties and group charges for periods prior to the acquisition of the entity,” Delta said.