Afdis Pays US$1.8 Million to ZIMRA Amid Wider US$97 Million Delta Tax Dispute

• Afdis completed payment of US$1.8 million in disputed historical income taxes while pursuing appeals
• Delta and Afdis face combined tax assessments of approximately US$97 million, following adverse court rulings
• Afdis generated US$8.76 million in operating cash flow amid rising capital expenditure and historical tax obligations

Harare- African Distillers Limited (Afdis) has completed payment of approximately US$1.8 million in disputed income tax assessments issued by the Zimbabwe Revenue Authority (ZIMRA), while continuing legal and administrative challenges over the calculation and treatment of obligations dating from 2019 to 2022. According to the company's unaudited financial results for the six months ended 30 September 2026, the payments were made under the pay now, argue later principle, which allows the tax authority to collect assessed amounts while objections and appeals remain outstanding. The disclosure comes after successive court decisions strengthened ZIMRA's position on foreign currency tax payments, with cumulative assessments against Delta Corporation and its associate, Afdis, reaching approximately US$97 million earlier this year.

Afdis had already accumulated payments of about US$1.4 million against the assessment by September 2025, leaving approximately US$400,000 subsequently settled to reach the disclosed amount. The assessment includes penalties and interest on income tax that the company originally paid in local currency. ZIMRA maintains that the relevant obligations should have been discharged in foreign currency and that amounts previously paid in Zimbabwe dollars should be recognised at their depreciated nominal values. Afdis maintains that aspects of the assessments still require clarification and adjustment, despite acknowledging the court decisions supporting the revenue authority's interpretation.

The legal dispute originates from Zimbabwe's monetary changes between 2019 and 2022, when companies operating with both local and foreign currency receipts faced disagreements over the currency required for settling statutory obligations. Under Section 4A of the Finance Act, qualifying tax liabilities arising from foreign currency receipts are payable in the corresponding foreign currency. ZIMRA's application of this requirement led to additional assessments against companies that had paid relevant taxes in Zimbabwe dollars.

Delta Corporation challenged the assessments, arguing that the introduction of the Zimbabwe dollar as the country's sole legal tender under the Finance Act No. 2 of 2019 entitled companies to discharge their obligations in local currency. The dispute also concerned the validity of amended assessments, the apportionment of income and value added tax across currencies, and the treatment of penalties.

In a judgment delivered on 9 July 2024, Zimbabwe's Supreme Court dismissed Delta's appeal against an earlier High Court decision. The court upheld ZIMRA's interpretation that tax on foreign currency receipts must be settled in foreign currency, while obligations arising from local currency receipts remain payable in local currency. It also confirmed that the applicable legal framework did not permit taxpayers to use local currency tax payments to offset corresponding foreign currency obligations.

The judgment addressed additional income tax assessments relating to 2019 and 2020 and value added tax assessments for transactions between March 2019 and October 2021. Its interpretation of the relevant legislation established a significant precedent for other taxpayers facing similar disputes over historical currency payments.

Delta pursued further constitutional proceedings, arguing that the earlier decisions had infringed its rights. On 8 July 2025, the Constitutional Court dismissed its application for direct access, finding insufficient grounds to intervene in the Supreme Court's final determination. The decision left the earlier judgment standing, although it did not constitute another substantive appeal reconsidering every disputed tax calculation.

The judicial decisions substantially strengthen ZIMRA's legal position concerning the required currency of payment. Company-specific disagreements over assessments, calculations and administrative procedures can nevertheless remain subject to separate proceedings.

The financial consequences extend across Zimbabwe's beverages industry. According to Delta Corporation's financial disclosures for the year ended March 2026, cumulative tax assessments against Delta Beverages and its associate African Distillers increased to approximately US$97 million from US$73 million in the previous year, representing an additional US$24 million in disputed obligations.

The assessments cover income tax, value added tax, interest and penalties associated with historical transactions, with the wider disclosure encompassing periods between 2019 and 2024. Delta reported that approximately US$18.7 million had been paid by March 2026 under the pay now, argue later principle, while legal and administrative efforts to resolve outstanding matters continued.

Delta has challenged the treatment of payments originally made in local currency and aspects of ZIMRA's allocation of tax liabilities between currencies. The company has also raised concerns over methods used in determining value added tax obligations, including the application of apportionment calculations.

The US$97 million exposure includes assessments relating to Afdis and should not be added to the company's separately disclosed US$1.8 million obligation. Afdis's own assessment is considerably smaller, although both disputes arise from the interpretation and application of historical foreign currency tax requirements.

For Delta, the cumulative exposure represents approximately one-quarter of the group's US$394 million shareholders' equity reported at March 2026. The scale introduces a substantial financial consideration alongside its operating performance and capital investment requirements, particularly if additional amounts ultimately become payable.

Afdis completed payment of its approximately US$1.8 million assessment during a period of improved operating performance. According to its September 2026 interim results, revenue increased by 40% to US$56.53 million from US$40.40 million in the comparable period, supported by 35% growth in sales volumes. Wines recorded volume growth of 65%, ready-to-drink beverages increased by 39%, and spirits volumes rose by 24%.

Operating income increased by 23% to US$7.09 million, while profit after tax advanced by 36% to US$4.89 million. The expansion in sales was accompanied by rising production costs, with cost of sales increasing by approximately 49% to US$37.74 million. Gross margin consequently declined from 37.3% to 33.2%, with management identifying higher logistics costs and the strengthening South African rand among pressures affecting the business.

The company's cash generation strengthened considerably. Net cash flows from operating activities increased to US$8.76 million from US$3.87 million, supporting capital expenditure of US$6.31 million during the period. Investment in property, plant and equipment more than doubled from US$2.66 million in the previous half-year, reflecting ongoing capacity expansion projects scheduled to begin commissioning during the fourth quarter of the financial year ending March 2027.

Operating cash flow exceeded capital expenditure by approximately US$2.45 million before other investing and financing movements. The full US$1.8 million tax assessment is equivalent to approximately 37% of the latest half-year profit after tax and 73% of this residual cash measure, demonstrating the relative financial scale of the historical obligation.

These comparisons do not represent an additional US$1.8 million cash outflow during the latest half-year because Afdis had already paid approximately US$1.4 million by September 2025. The increase in cumulative payments between the two reporting dates amounts to approximately US$400,000, although the available disclosures do not establish the precise timing of those subsequent payments.

Despite completing payment, Afdis has retained its legal and technical objections to certain aspects of ZIMRA's assessment. Management's September 2026 disclosure states that further clarification and adjustment may be required, with the company continuing engagements through legal counsel and tax advisers.

The company's statement of financial position reported a current tax asset of approximately US$1.84 million at September 2026, compared with US$1.82 million at March. The published information does not establish that the balance represents a refund receivable from the disputed assessment. Its relationship to the continuing proceedings and the accounting recognition of payments already made therefore require additional disclosure before any recovery can be assumed.

ZIMRA's authority to collect assessed taxes ahead of the final resolution of objections creates an immediate cash requirement for affected companies. The eventual accounting outcome may differ from the timing of payment, particularly where disputed assessments are subsequently adjusted or recoveries become legally enforceable.

Afdis has reduced its immediate collection exposure under the disclosed assessment by completing payment. Its remaining uncertainty concerns the outcome of challenges to specific calculations and the treatment of amounts already remitted.

The Afdis and Delta disputes illustrate the financial consequences of applying foreign currency tax obligations to transactions undertaken during Zimbabwe's earlier monetary transitions. Companies that originally settled obligations in local currency have faced reassessments years later, with currency depreciation, interest and penalties potentially increasing their financial exposure.

The Supreme Court's interpretation provides legal guidance on the currency required for qualifying tax payments. The remaining commercial consequences arise from the calculation of historical obligations, the treatment of amounts previously settled and the resolution of company-specific disputes.

For Afdis, the latest financial results show that stronger operating cash generation has supported investment and the settlement of its disclosed assessment. Its continuing appeal leaves the final accounting position unresolved, while Delta's substantially larger disputed exposure remains relevant to the financial position of the wider beverages group.

Further disclosures on the settlement of outstanding appeals, the recognition of tax payments and any changes to the cumulative assessments will provide greater clarity on the eventual financial obligations. Afdis's completion of the US$1.8 million payment establishes progress in addressing its historical exposure, although the broader disputes continue to demonstrate the lasting financial consequences of Zimbabwe's former currency arrangements.

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