BEVERAGE maker Delta Corporation Limited's legal fight with the taxman might cost the group US$34,5 million if it loses the court appeal, businessdigest can report.
In its recent financial results for the half year ended September 30 2023, Delta revealed that the Zimbabwe Revenue Authority (Zimra) had levied additional income tax and value added tax assessments, penalties, and interest of US$54,7 million that was settled in local currency.
This is because, according to Zimra, the money should have been paid as foreign currency.
“The principal amount settled in Zimbabwe dollars, which exclude penalties and interest, is equivalent to US$9,8 million for income tax and US$25,2 million for value added tax (total US$35 million) based on the exchange rates prevailing on the date of payment,” the beverage giant said.
“Should the group’s appeal not be successful, it would be refunded the Zimbabwe dollar payments made towards the settlement of these taxes.
“Due to the effects of inflation, these amounts would be equivalent to US$500 000 based on the exchange rate prevailing on the 30th of September 2023. The resultant value loss to the group would amount to US$34,5 million.”
The loss would come at a time when Delta is looking inward to raise US$60 million for its capital expenditure next year as banks have proven to be “incapacitated”, according to the firm.
Delta said there have been significant currency changes in Zimbabwe since 2018, and these changes create uncertainties in the treatment of transactions for tax purposes due to the absence of clear guidelines and transitional measures.
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“There are further complications arising from the wording of the legislation in relation to the currency of settlement of certain taxes, which give rise to interpretations that may differ with those of the tax authorities, thereby creating uncertainties in tax positions,” it said.
The government reintroduced the local currency in 2019, but it rapidly lost value. Despite repeated efforts by authorities to boost confidence, the local unit has weakened by over 80% this year, according to economic analysts.
Delta continued: “The Zimbabwe Revenue Authority has made additional income tax and value-added tax assessments, penalties and interest of US$54,7 million against group entities for amounts that were settled in Zimbabwe dollars, but that Zimra deem should have been paid in foreign currency.”
The company said no credit had been given by Zimra to the equivalent amounts already paid in local unit.
Zimra charges foreign currency tax based on the proportion of forex earned by a company or individual.
Delta said it continued to engage the relevant authorities, while these assessments were being objected to and challenged through the courts.
“Based on expert and legal advice received to date, the board is of the view that the group entities acted within the confines of existing legislation,” it said.
“Any payments that are made with respect to the revised assessments have been accounted for as prepayments in anticipation of a successful appeal process.”
Zimra has, in the past, been accused of levying very high taxes against companies and individuals making it hard to conduct business operations in the country. Delta also reported that its subsidiary, National Breweries Plc (Zambia), was facing a challenging 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.
“The group considers that its settlements were made in line with the legal requirements and anticipates a favourable determination on these tax matters based on its interpretation of the law,” the firm said.
Local research firm Inter Horizon (IH) Securities said Delta had continued with its capital expenditure campaign, having spent an indicative US$46 million within the first half of their financial year on upgrades to capacity.
“The business is expected to benefit from this additional capacity improving product supply on the market and operational efficiencies for several lines,” IH Securities said.
“Going into the festive season, seasonal demand is expected to propel volumes for the group, which are notably trending above four-year averages for key segments.
“However, bottom-of-the-pyramid liquidity into 2024 is likely to be impacted by the foreseen negative impact of El Nino conditions on the agricultural sector and moderating hard commodity prices on international markets.”
IH Securities said given the volatile environment, the Delta management had highlighted that focus would be on protecting the balance sheet, optimum resource allocation, generating positive cashflows to fund the ongoing capital projects, and turning around the regional operations.
Based on its market performance on the Zimbabwe Stock Exchange, Delta has a market capitalisation of about US$800 million.
