Business

As FG, OPS tango over sin tax

The reintroduction of excise duty on carbonated drinks by government has awakened members of the organised private sector into criticising the decision, ABDULWAHAB ISA report

Four years after the stalemated idea of scaling up the country’s excise duty to accommodate more items was conceived, government revisited it last week in a bid to rake more revenue from the non-oil sector of the economy. Minister of Finance Budget and National Planning, Mrs. Zainab Ahmed, last week, hinted of an impending excise tax on non-alcoholic drinks, a move that instantly elicited varied reactions across divides.

Flash back

In 2018, March to be precise, the Federal Government approved reviews of excise duty on tobacco, beverages and alcoholic drinks. The reviews were to take effect from June 4, 2018. The minister of finance at the time, Kemi Adeosun, had, in a statement, said the excise duty rates were spread over a threeyear period from 2018 to 2020 in order to moderate the impact on prices of the products. Adeosun, at a news briefing, defended the excise duty regime. She said it followed an all-inclusive stakeholder engagement by the Tariff Technical Committee of the Federal Ministry of Finance with key industry stakeholders. According to her, the upward review of the excise duty rates for alcoholic beverages and tobacco was to achieve a dual benefit of raising government’s fiscal revenues and reducing the health hazards associated with tobacco-related diseases and alcohol abuse. “The Tariff Technical Committee (TCC) recommended the slight adjustment in the excise duty charges after cautious considerations of government Fiscal Policy Measures for 2018 and the reports of the World Bank and the International Monetary Fund Technical Assistance Mission on Nigeria fiscal policy. “The effect of the excise duty rate adjustment on trade and investment was also assessed by the Federal Ministry of Trade and Investment and it adopted the recommendations of the TTC. “Furthermore, peer country comparisons were also carried out, showing Nigeria as being behind the curve in the review of excise duty rates on alcoholic beverages and tobacco,” Adeosun said. Following the presidential approval, Adeosun said the new excise duty rate on tobacco was now a combination of the existing ad-valorem base rate and specific rate, while the ad-valorem rate was replaced with a specific rate for alcoholic beverages. In a detailed preview, Adeosun gave an overview of excise rate as it affects each commodity. Under the excise duty rates for tobacco, in addition to the 20 per cent ad-valorem rate, cigarette will attract a N1 specific rate per stick (N20 per pack of 20 sticks) in 2018; N2 specific rate per stick (N40 per pack of 20 sticks) in 2019 and N2.90k specific rate per stick (N58 per pack of 20 sticks) in 2020. The minister explained that Nigeria’s cumulative specific excise duty rate for tobacco was 23.2 per cent of the price of the most sold brand, as against 38.14 per cent in Algeria, 36.52 per cent in South Africa and 30 per cent in The Gambia. The new specific excise duty rate for alcoholic beverages cuts across beer and stout, Wines and Spirit for the three years – 2018 to 2020. Under the new regime, beer and stout would attract N0.30k per centiliter (Cl) in 2018 and N0.35k per Cl each in 2019 and 2020. Wines would attract N1.25k per Cl in 2018 and N1.50k per Cl each in 2019 and 2020, while N1.50k per Cl was approved for spirits in 2018, N1.75k per Cl in 2019 and N2.00k per Cl in 2020.

Expanding income via taxes on drinks

Faced with acute revenue shortages amid rising expenditure profiles, overheads and personnel, the Federal Government may have found a leeway to augment revenue by slamming taxes on select consumables. Ahmed had, last week, on the occasion of the 2022 budget breakdown and highlights, flown a kite on the Federal Government’s thinking on new taxes on carbonated drinks. The minister added that the new excise tax wasn’t a policy from the moon. She explained it had been taken care of by the newly signed Finance Act by the president. “There’s now an excise duty of N10 per liter imposed on all non-alcoholic and sweetened beverages. And this is to discourage excessive consumption of sugar in beverages, which contributes to a number of health conditions, including diabetes and obesity. But, it is also used to raise excise duties and revenues for healthrelated and other critical expenditures. This is in line also with the 2022 budget priorities,” she added.

Tax harvest

Quest to broaden non-oil tax income is luring government to load multiple taxes on citizens. The Finance Act 2021, which became effective January 2022, makes provision for a stream of tax incomes for financing government’s obligations. The International Monetary Fund (IMF) and World Bank suggested to the Nigerian government to increase its valueadded tax (VAT) rate to at least 10 per cent by 2022 and 15 per cent by 2025 from 7.5 per cent to boost revenues after recovering from a recession. The Bretton Wood institution’s position on taxes is at variance with Africa Development Bank AfDB. AfDB President, Dr. Akinwunmi Adesina, while speaking at the recent annual lecture of the Institute of Chartered Accountants of Nigeria (ICAN) in Abuja, was of the opinion that Nigeria’s low tax to GDP does not call for frequent increase in taxes by government. Adesina said while tax to Gross Domestic ratio in Nigeria is relatively low, it was, however, not an excuse to keep raising tax rates. He noted that the inefficient system in Nigeria had imposed an implicit tax on Nigerians, noting that people were made to provide basic essential facilities that should have been made available by government. “While tax rates are relatively low in Nigeria, it simply is not an excuse to keep increasing taxes. Take the case of Norway for example. “Its tax-to-GDP ratio is 39 per cent. Singapore’s tax-to-GDP ratio is 13.2 per cent. And Nigeria’s tax-to-GDP is 6.1 per cent. It is easy to make the comparison and say Nigeria needs to raise its taxes to similar levels as in Norway or Singapore.

Stakeholders’ reactions

As expected, the pronouncement of a new tax on carbonated drinks attracted varied reactions. Various interest bodies ranging from the organised private sectors and others have expressed opinions. First is the Manufacturers Association of Nigeria (MAN), which described the new tax as counterproductive as it will inflict additional cost burden on producers of the product, noting that it might lead to job losses. The Manufacturers Association of Nigeria (MAN), Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Lagos Chamber of Commerce and Industry (LCCI) and Centre for the Promotion of Private Enterprises (CPPE) were on the same page. For MAN, introduction of excise duty on non-alcoholic beverages will cause a 0.43 per cent contraction in output and about 40 per cent drop on total industry revenues in the next five years. Mr. Segun Ajayi-Kadir, MAN Director-General, said this in Lagos while reacting to the introduction of N10 excise duty on carbonated drinks by government. Ajayi-Kadir explained that food and beverages contributed the highest at 38 per cent of the total manufacturing sector quota to the nation’s Gross Domestic Product (GDP). He added that the sector comprised 22.5 per cent of manufacturing jobs and generated over 1.5 million jobs. “One is particularly worried about the ripple effect of the introduction of the excise duty, despite strenuous evidence-based advice to the contrary. “This will have an unpleasant impact on employment, households and consumers. The MAN DG stated that the revenue aspirations of government in introducing this excise may not be justified in the long run. He noted that the excise estimated to generate N81 billion between 2022 and 2025 would not be sufficient to compensate the corresponding government’s revenue losses in other taxes from the group. “For instance, the corresponding effect of reduced industry revenue on government revenues is estimated to be up to N142 billion contraction in Value Added Tax (VAT) raised by the sector and N54 billion Corporate Income Tax reduction between 2022 and 2025. “This is not to mention the potential negative impact on manufacturers/ supply chain. Nigeria is the 6th highest consumer of soft drink, but per capita consumption is low. Introducing excise will easily reduce production capacity, causing manufacturers to struggle to meet investor commitments as well as cause investors to take investments to other countries,” he said. On December 14, 2021, the OPS gave notice of its rejection of plans by government to reintroduce excise duty on carbonated drinks.

Last line

Conceived sometime ago, implementation of fresh excise tax on carbonated drinks is an additional burden that will further decimate an already weakened purchasing power of the average Nigerian.

 

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