Business

Excise Duty: Starting the year on a wrong footing

Last week, the Federal Government announced excise duty of N10/liter on non-alcoholic, carbonated and sweetened beverages. Taiwo Hassan reports on the economic implications

Several times, the real sector of the economy has always been at the receiving end of government’s policies, be it fiscal and monetary, despite the macroeconomic challenges bedeviling the economy. To make matters worse, whenever government is searching for an avenue to rake in more money to shore up its revenue profile, the real sector becomes the scapegoat. Meanwhile, the same goverrnment has been glorifying its commitment to creating an enabling business environment for Micro Small and Medium scale Enterprises (MSMEs) in addition to committing huge amount of money on sustainable growth in the country. This disposition is, however, doubtful as investigation reveals that firms doing business in Nigeria have been finding it difficult to operate smoothly and efficiently because of the sundry of challenges posed by government’s policies, including difficulties in accessing finance, good operating environment, harsh regulatory framework, inadequate power supply among others.

2018-2020 Excise Duty rate

To buttress government’s insensitivity to the plights of manufacturers, in 2018, the former Minister of Finance Ms. Kemi Adeosun, announced that government was introducing a 3- year (2018-2020) excise duty on alcoholic beverages, spirits and tobacco for manufacturers in this category in order to help government shore up its revenue, aftermath of a plunge in crude oil price at the international market. Indeed, the hike took-off in June 4, 2018 when many of them were unprepared. Under the rates for tobacco, in addition to the 20 per cent ad-valorem rate, each stick of cigarette attracted a N1 (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. While that of excise duty rates for alcoholic beverages cut across beer & stout, wines and spirits for the three years 2018 to 2020. Under then regime, beer & stout attracted N0.30k per centiliter (Cl) in 2018 and N0.35k per Cl each in 2019 and 2020. Wines attracted 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. The then Manufacturers Association of Nigeria (MAN) President, Dr. Frank Udemba Jacobs, said allowing such implementation in excise duty on alcoholic beverages, spirit and tobacco would lead to closure of many firms within three years. Also, the National Union of Food Beverage and Tobacco Employees (NUFBTE) predicted then that the duty rates would cost more than 20,000 jobs.

2022-2025 Excise Duty rates

Not done with the country’s manufacturing sector, especially the beverage sub-sector of the manufacturing arm, government, last week, introduced excise duty of N10/liter on nonalcoholic, carbonated and sweetened beverages. Indeed, the Minister of of Finance, Budget and National Planning, Hajia Zainab Ahmed, made the announcement during a public presentation of the 2022 Appropriation Act in Abuja, where she said the excise duty was introduced in line with the Finance Act signed into law by President Muhammadu Buhari on December 31, 2021. However, the most disturbing part of the new rate is government’s deaf ear paid to the overwhelming appeal from the members of the organised private sector (OPS), including the Manufacturers Association of Nigeria (MAN), repeatedly to shelve it for more talks. Currently, a pack of 12 bottles of Coca-Cola goes for N1,500 while Pepsi-Cola is N1,400. A bottle of each goes for N150. Consequently, the new development is expected to trigger an increase in the retail price of the products with immediately effect in the country.

Harsh reactions trails tariff take-off

Following the pronouncement, the country’s private sector members and MAN said that they were disappointed with the federal government’s action. They warned that the country’s manufacturing sector was starting the year 2022 on an unstable note that could lead to job losses, capacity underutilisation, stifling production amidst additional cost, automatic increase in the affected products and other macroeconomic challenges. Speaking on the issue in Lagos, the Director-General of MAN, Segun Ajayi-Kadir, said that the new N10 per litre on all non-alcoholic, carbonated and sweetened beverages would unarguably pose a production cost burden on beverage manufacturers and also hurt their revenue earning projections for this year. Ajayi-Kadir explained that the introduction of excise duty of N10/liter on non-alcoholic, carbonated and sweetened beverages, despite its potential overwhelming negative impact, was rather unfortunate. He pointed out that there was no doubt that the potential revenue gains were the basis for the introduction of the duty by government. According to him, “it would appear that the goose that lays the golden eggs is being led to perdition. Seeing that the affected sub-sector, has contributed most significantly to the economy and taxes, despite the debilitating impact of naira devaluation, inadequacy of forex and COVID-19. “The food and beverage contributed the highest (38 per cent) of the total manufacturing sector to the GDP! It comprises 22.5 per cent of manufacturing jobs and generates more than 1.5 million jobs. So, this excise would certainly cast a sunset to this performance.” Furthermore, the MAN director stated that recent studies had shown that introducing excise on non-alcoholic beverages was likely to cause a 0.43 per cent contraction in output and about 40 per cent drop in total industry revenue in the next five years. He said: “The revenue aspirations of government in introducing this excise may not be justified in the long run. Let us look at it this way. The government is estimated to generate an excise tax of N81 billion between 2022-2025 from the group. “This will not be sufficient to compensate the corresponding government’s revenue losses in other taxes from the group.” Also speaking, the Past President of Lagos Chamber of Commerce and Industry (LCCI), Engr. Babatunde Ruwase, explained that government should have shelved the plans, going into more dialogue with MAN and private sector operators before announcing it.

Last line

In conclusion, Nigeria is the 6th highest consumer of soft drink but per capita consumption is low. Introducing excise duty will easily reduce production capacity causing manufacturers to struggle to meet investors’ commitments as well as cause investor to take investments to other countries.

 

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