Delta Corporation Zimbabwe: Punitive Tax Challenges Include US$100M Bill

• Delta Corporation faces a US$100 million retrospective tax bill from ZIMRA for 2019-2022, stemming from currency revaluation of past local currency payments.
• ZIMRA's demand for dual currency tax returns contradicts Sections 15 and 28 of Zimbabwe's VAT Act, which mandate a single return.
• Compliance is being driven by public notices rather than formal regulations, creating legal and operational challenges for businesses.
• The Zimbabwe sugar tax has doubled sugar costs for Delta, leading to two years of losses for its sparkling beverages unit and product downsizing.
• A 5% withholding tax on unregistered traders hinders Delta's distribution network, preventing supply to informal bottle stores and causing price increases.

This reliance on informal directives, rather than properly promulgated laws, forces taxpayers into a rigid computerized system.

Delta Corporation Limited, a cornerstone of Zimbabwe's agricultural value chains since 1947 through contract farming, recently voiced significant concerns regarding the nation's tax environment. Group Finance Director Alex Makamure informed the Industry and Commerce Portfolio Parliamentary Committee, convened to discuss 2027 budget priorities, that a combination of policy inconsistency, fluctuating currency regulations, and various statutory obligations are severely impacting the company's operational value chain. These factors, he asserted, are undermining the ease of doing business within the beer and beverages sector.

A primary concern for Delta Corporation Zimbabwe involves a substantial US$100 million retrospective tax bill spanning the years 2019 to 2022. Makamure clarified that this demand does not stem from non-payment of taxes but rather from a contentious currency revaluation process. Taxes originally settled in local currency were subsequently deemed to hold zero value by tax authorities, leading to a renewed demand for these payments in foreign currency. This ZIMRA retrospective tax bill highlights the profound challenges businesses face due to unpredictable currency shifts and their implications for past financial obligations.

Despite these punitive tax challenges, Delta maintains its position as an exemplary taxpayer in Zimbabwe. The company has demonstrated consistent growth in its fiscal contributions, with collections increasing from US$251 million in 2024 to over US$300 million projected for 2025, encompassing excise, income tax, and VAT. However, Makamure noted that despite generating billion-dollar revenues and experiencing a 40 percent business growth since 2022, the company retains a disproportionately small amount of its earnings, partly due to the significant 40 percent excise duty levied on beer products alone.

Further complicating the operational landscape, Delta Corporation, echoing concerns raised by the Confederation of Zimbabwe Industries (CZI), has highlighted significant confusion surrounding tax compliance. A key issue revolves around ZIMRA's current practice of requiring businesses to submit two separate tax returns: one denominated in local currency and another in foreign currency. This requirement for Zimbabwe dual currency tax returns directly contradicts established legal frameworks.

Specifically, Sections 15 and 28 of the VAT Act in Zimbabwe explicitly stipulate the submission of only one tax return. While Section 38C of the same Act governs the method of payment, it does not authorize the demand for dual returns. This discrepancy underscores a critical legal challenge where tax compliance is being dictated by public notices rather than formal regulations, which are mandated under Section 78 of the relevant legislation.

This reliance on informal directives, rather than properly promulgated laws, forces taxpayers into a rigid computerized system. This system, according to Makamure, offers no flexibility and operates without the necessary supporting legislation, creating an environment ripe for Zimbabwe tax compliance issues and potential disputes. The situation raises serious questions about the legality and fairness of ZIMRA's demands, particularly concerning the retrospective tax bill and the dual currency returns.

Beyond the complexities of currency revaluation and compliance, Delta Corporation is also grappling with the severe economic impact of specific levies, notably the Zimbabwe sugar tax. This tax has led to substantial financial strain on the company's sparkling beverages unit, which has reported losses for two consecutive years. The cost of sugar, a critical raw material, has more than doubled from US$800 to US$1,800 per tonne, with the increase directly attributable to this tax.

This escalation in sugar costs has rendered local production significantly uncompetitive when compared to imported products, many of which benefit from concessions or evade tax altogether. To mitigate the impact on consumers and maintain market presence, Delta has been compelled to drastically adjust its product offerings and pricing. Initially holding a price point of US$1 for four packs in 2024, the company first reduced pack sizes from 500ml to 440ml, and subsequently to 350ml, to sustain a US$1 price for two units.

The cumulative effect of these various tax burdens, including the high excise duty on beer and the problematic sugar tax, significantly limits Delta's ability to retain profits despite its substantial revenues and growth. Makamure warned that if no action is taken to address the sugar tax in the forthcoming budget, the company may be forced to take drastic measures, signaling the critical nature of these fiscal pressures on its operations and the broader beverage industry.

The array of tax-related challenges faced by Delta Corporation extends beyond direct levies to broader issues affecting its distribution network and market reach. A 5% withholding tax imposed on unregistered traders, for instance, significantly impedes Delta's extensive 350-truck delivery network. This tax effectively blocks the company from supplying bottle stores classified as informal, a crucial segment of the market.

The inability to directly supply these informal outlets forces price hikes as products must navigate alternative, often more expensive, distribution channels. This situation, alongside the retrospective tax bill and the dual currency return demands, underscores the pervasive Zimbabwe tax compliance issues and the broader policy inconsistencies that Makamure highlighted as "choking" the value chain. Such an environment creates considerable uncertainty and operational hurdles for even well-established businesses.

The testimony before the parliamentary committee, chaired by Zaka South MP Clemence Chiduwa, paints a clear picture of how current tax policies and their implementation are undermining the ease of doing business in Zimbabwe. The cumulative effect of these challenges, from the US$100 million retrospective tax bill to the impact of the sugar tax and the withholding tax, threatens the viability of key industries and could have far-reaching consequences for the national economy.

Lawyers and compliance officers in Zimbabwe should scrutinize ZIMRA's retrospective tax demands based on currency revaluation and assess the legality of requiring dual currency tax returns, especially where such practices conflict with established legislation like Sections 15 and 28 of the VAT Act. This situation highlights potential grounds for tax disputes and the need to advise clients on navigating compliance driven by public notices rather than formal regulations.

Source: Original reporting via New Zimbabwe.