Delta Corporation Cites Punitive Taxes Choking Value Chain

Delta Corporation Limited, through its Group Finance Director Alex Makamure, informed the Industry and Commerce Portfolio Parliamentary Committee in Zimbabwe last week that punitive taxes, policy inconsistency, and currency changes are severely impacting its beer and beverages value chain, hindering the ease of doing business.

Delta Corporation, a major Zimbabwean beverage producer, voiced significant concerns to a parliamentary committee regarding the challenging operating environment. Key issues include a 40% excise duty on beer, a 'punitive' sugar tax that has led to losses in its sparkling beverages unit, and a contentious US$100 million retrospective tax bill for 2019-2022. This retrospective bill is attributed to currency conversion issues, where taxes initially paid in local currency were later revalued to zero and are now being demanded in foreign currency. Furthermore, Delta, echoing concerns from the Confederation of Zimbabwe Industries (CZI), highlighted confusion in tax compliance, specifically ZIMRA's requirement for two separate tax returns (local and foreign currency) despite the VAT Act (Sections 15 and 28) stipulating only one, and the reliance on public notices rather than formal regulations (Section 78) for compliance directives.

This situation underscores profound challenges in Zimbabwe's fiscal and regulatory landscape, particularly concerning tax administration, currency policy, and legislative clarity. For practitioners, it highlights the risks associated with policy inconsistency and retrospective application of tax liabilities, which can severely impact business operations and financial stability. The dispute over the US$100 million tax bill, stemming from currency revaluation, points to potential legal challenges regarding the interpretation and application of tax laws in a multi-currency environment. The concerns about ZIMRA's compliance requirements, driven by public notices rather than regulations, raise questions about the rule of law and administrative due process in tax matters.

The legal context involves several key Zimbabwean statutes and regulatory principles. The Income Tax Act (Chapter 23:06) and the Value Added Tax Act (Chapter 23:12) are central, particularly Sections 15, 28, and 38C of the VAT Act concerning tax returns and payment methods, and Section 78 regarding the promulgation of regulations. The imposition of excise duties and sugar taxes falls under specific tax legislation or statutory instruments. The retrospective tax bill implicates principles of legal certainty, legitimate expectation, and the non-retroactivity of laws, especially concerning currency revaluation and its impact on past tax obligations. The reliance on public notices instead of formal regulations challenges the principle of legality, where administrative actions must be grounded in clear statutory authority.

Delta Corporation Limited is the primary corporate entity raising these concerns, with Alex Makamure as the key individual spokesperson. The Industry and Commerce Portfolio Parliamentary Committee is the body to which these concerns were presented. The Zimbabwe Revenue Authority (ZIMRA) is the tax collection and enforcement agency whose practices are being questioned, and the Confederation of Zimbabwe Industries (CZI) is also mentioned as sharing similar concerns. The Zimbabwean government, through its various ministries and legislative bodies, is the ultimate authority responsible for addressing these issues. The outcome of Delta's engagement with the parliamentary committee and the resolution of the US$100 million tax bill are not yet reported.

Attorneys advising businesses in Zimbabwe, especially those in the manufacturing, beverage, and other heavily taxed sectors, must pay close attention to developments in tax policy, currency regulations, and ZIMRA's administrative practices. The retrospective tax bill issue demands careful review of past tax payments and potential liabilities arising from currency fluctuations. Businesses should scrutinize ZIMRA's compliance directives, ensuring they are based on legally promulgated regulations rather than mere public notices, and be prepared to challenge those lacking proper legal basis. Advocacy through industry bodies like CZI remains a crucial avenue for influencing policy.