Debre Birhan Natural Spring Water (DBNSW) S.C., the Company behind the AquaSafe bottled water brand, has suspended its operations amid a dispute with federal tax authorities, involving hundreds of millions of Birr.

The tax dispute, which unfolded over the past two years, followed an audit of the Company's finances, with federal tax authorities claiming over 600 million Br in tax liabilities. The audit questioned the Company's financial practices, leading to severe measures, including asset seizures and bank account freezes, significantly impacting its operations and workforce. Over 300 employees faced uncertainty as the Company battled the claims by federal authorities.

The Company has been a major player in the water bottling industry for over eight years. Its plant covers 10,000Sqm and has an hourly production capacity of 13,000 bottles. Located in the scenic town of Debre Birhan, 130Km north of Addis Abeba in the Amhara Regional State, DBNSW was incorporated in 1999 by Gebeyaw Takele and his family. It underwent several ownership changes before 54Capital acquired 98pc of the shares.

Trade registration documents revealed that 54Capital, a private equity firm registered in the United Kingdom (UK) in 2013, was dissolved in 2022. It has been acquired by SAMANU, a conglomerate overseeing various consumer brands, including Tena edible oil, 555 Household Care and Aura soap and detergents. Despite these changes, company representatives claim the legal relationship between DBNSW and SAMANU remains defined by specific agreements without direct shareholding ties.

According to Lemlem Fekadu, SAMANU's legal department head, the presence of the Aquasafe brand on the Company's website results from an agreement between the two companies that "cannot be publicly disclosed but with no shareholders relationship" between the two entities.

However, the ambiguous ownership structure has not spared the bottling company from ceasing production.

DBNSW's course took an unexpected turn when it acquired another plant after three years of operation as part of a strategic expansion. It triggered a three-year investigative audit by federal tax authorities on the first plant, as the audit findings led to a cascade of events that would alter the Company's fate. Claims by federal tax authorities put the Company and its employees in a precarious situation.

The executives of DBNSW sought to contest the audit's findings, appealing to the federal tax-appellate tribunal for relief.

The tribunal's requirement of a 50pc deposit of the tax assessed to proceed with the appeal, however, presented another obstacle. Company executives have voiced their frustrations with the audit process and the substantial financial burden it imposed, arguing that the process was flawed. Aziz Iraqi, members of the senior management team at the forefront of the tax battle, expressed deep disappointment in the process despite years of efforts to appeal and request a reevaluation of the audit findings.

"The findings were completely wrong," he told Fortune.

Most audits have led to prolonged disputes, particularly within the manufacturing sector. Experts call for reform in the auditing and taxation processes to ensure a fairer approach that supports growth and sustainability. With audit statements being inflated, a tax expert who requested anonymity has raised concerns about the legality of the auditing practices. He claimed an acute flaw in audit processes and tax assessments, failing to consider the potential losses in production.

"Tax authorities' mindset tends to focus on a company's revenue target rather than its actual performance," he said. "It should be centred on performance metrics."

Raising questions about the fairness and accuracy of the tax assessment process, the expert urged a reevaluation of current practices, emphasising the need to examine tax dues and prevent potential adverse effects on the manufacturing sector.

Reta Asefa is a director of the IT Development Administration at the Ministry of Revenues. He believes businesses are entrusted with declaring taxes, stressing the potential for discrepancies, and pointing out the possibility of companies underrepresenting revenues and overstating costs discovered during audits.

"Underreporting persists in some cases," he said.

The Ministry of Finance is mandated to consider waiving interests on taxes. According to Abraham Rega, the Ministry's legal advisor, the likelihood of this happening is rare. However, he acknowledged the exceptional measures, including interest exemptions and settlement reschedules, such as during the COVID-19 pandemic three years ago, conflict situations, and natural disaster relief measures.