Ethiopia's juice manufacturers confront formidable economic challenges following the reclassification of their products as flavoured beverages, which has led to them being burdened with hundreds of millions of birr in back taxes.

Last year, upon request from the Finance Ministry, the Ethiopian Food & Drug Administration (EFDA) conducted research that concluded all the juice manufacturers in the country were producing flavoured drinks, which entails a 25pc excise tax levy.

The declaration spurred the Ministry of Revenues to seek back taxes and penalties from 10 manufacturers dating back four years, a move that has unsettled the beverage industry subsector already grappling with input shortages.

Temesgen Takele, the Ministry's excise tax liability and audit services coordinator, says they are responsible for collecting taxes on any item deemed taxable by the Finance Ministry.

"We could only go back four years," he told Fortune." Still, only a few have come to report."

Excise taxes were introduced four years ago on items deemed harmful to public health, like sweets, alcohol, and cigarettes, as well as those categorized as a luxury, like bottled water and flavoured drinks.

Abraham Rega, legal advisor at the Ministry of Finance, contends that the manufacturers should have already been paying excise taxes as their products could not be classified as 'juice'.

"There is no way around not paying," he told Fortune.

According to the Institute of Ethiopian Standards(IES), juice production needs to include at least 30pc fruit pulp, a concentrate comprised of both the fibre and juice from fruit processing.

The Association of Ethiopian Beverages Manufacturing Industries has pleaded with the Ministries of Industry, Finance and Revenues to reconsider the reclassification and subsequent excise tax over the past two months.

Ashenafi Merhed, the association's general manager, foresees the imminent closure of the 15 semi-operational factories. Ten have already terminated operations over the few years due to mounting input shortages and lack of access to foreign currency.

"The Authorities are completely misunderstanding it," the general manager told Fortune.

Ashenafi claims that meeting the 30pc requirement is impossible without local pulp manufacturers or sufficient access to foreign currency for imports. He says some manufacturers already use 15pc imported pulp, which he believes should prevent them from being categorized as flavoured drinks.

"There is a serious misconception," Ashenafi says.

Officals from EFDA challenge the notion.

Mulatu Tesfa, head of inspection and legal enforcement at the EFDA, says no 'juice' manufacturer in the country met the minimum requirements to be called such despite the advertisements. He suggested that the manufacturers had intentionally swindled consumers by falsely representing flavoured drinks as juices even though the products did not meet the standards.

"There was an industry-wide false promotion," Mulatu told Fortune.

Nursedin Redwan, general manager of Sendelet Food Processing PLC, says the company might be forced to close its 3,000 Sqm factory in Burayu, Shagaar City if the taxes are not revised.