Amidst growing outcry over multiple taxation in Nigeria, the federal government has introduced an excise duty of N10 per liter on all non-alcoholic, carbonated and sweetened beverages.
Disclosing this during the public presentation of the 2022 Appropriation Act yesterday in Abuja, Minister of Finance, Budget and National Planning, Zainab Ahmed, said the move is part of the government’s plan to generate revenue and tackle the growing obesity and diabetes menace in Nigeria.
Excise duty is a form of tax imposed on locally manufactured goods.
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The policy, known as ‘Sugar Tax’, had been advocated since last year by a coalition of non-governmental organizations called National Action on Sugar Reduction (NASR), who believe it is needed if the Nigerian government is to tackle diabetes and obesity. The Sugar Tax thus becomes part of the new Finance Act signed into law by President Muhammadu Buhari on December 31, 2021, which as it unpacks, reveals a pack of new tax laws that touch many sectors of the economy.
Ahmed said the 2021 Finance Act also raised excise duties and revenues for the health sector, and it introduces new digital taxes.
The Minister said the excise duty on soft drinks would discourage excessive consumption of sugar beverages which contributes to diabetes, obesity among others.
“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 revenues for health-related and other critical expenditures. This is in line with the 2022 budget priorities,” she said.
Tax has been an integral part of Buhari’s administration policy review. New tax policies which include upward review of VAT and Stamp Duty charges, were introduced last year. The federal government has continued to seek ways to generate more revenues through taxation, part of the reasons the Finance Act has to be reviewed.
However, every move by the federal government to impose additional tax on Nigerians, has come at the cost of more economic pains owing to Nigeria’s meagre disposable income. With more than 40 percent of Nigerians living below the poverty line, each of the new tax policies has been considered ‘insensitive.’
As expected, the ‘Sugar Tax’ was condemned.
Apart from consumers, manufacturers and distributors in the food and drinks sector are impacted by the Sugar Tax. Many started early enough to condemn the government’s move to introduce N10 tax on non-alcoholic beverages.
On December 14, 2021, the Organized Private Sector, OPS, made it known that it stands against the excise duty.
“It is instructive to note that Nigerian manufacturers have been contending with the dislocations caused by the pandemic and the recession that followed; they are also facing serious crisis resulting from liquidity challenges in the foreign exchange market, which is impacting adversely on the cost of production; in addition, they are faced with intense pressure arising from numerous structural bottlenecks that are creating sustainability challenges for investors, especially those in the SME segment.
“Also of concern is significant spike in the cost of raw materials, cost of fund, high import duty, elevated energy cost, prohibitive cost of transportation and high cost of logistics/shipping.
“We therefore, urge Government to jettison the idea of reintroducing the Excise Duty on carbonated drinks but continue to support and promote the industry to attain full recovery after the onslaught of the pandemic and position it to further accommodate the teeming unemployed Nigerian, particularly the youths,” Mr Taiwo Adeniyi, the OPS Chairman stated.
In addition to the high cost of goods and services, another angle to the pains of this Excise Duty was pointed out by the president of the National Union of Food, Beverage and Tobacco Employees, NUFBTE , Union, Mr. Lateef Oyelekan. He said: “Should this excise duty be imposed these companies would have no choice than to lay off workers.
“Some may have to reduce production line instead of expansion, while some may even close down permanently. It has happened in the past. At the end, Nigerians are the ones that will suffer.
“These companies are already looking outside Nigeria for alternate production of their products and would rather move to a more favourable business climate in the West Africa region.”
Oyelekan’s postulation was corroborated by the Fiscal Policy Partner and Africa Tax Leader at PwC, Mr Taiwo Oyedele.
“I will be more concerned about sectors like manufacturing because their cost is rising and they are not able to increase their selling prices because the purchasing power is low.
“If you impose a tax, because they want to survive, they have to cut down on employment and find a way to survive. In terms of inflation, when you impose maybe an excise tax, if the sector is able to pass it on to customers, it would be higher selling prices, leading to inflation.
“But if the products are very elastic, and you are afraid of losing the market, then you bear the costs and your margins will be low. If your margin is low, it means what you pay in company income tax will be less, and your shareholders will get less in dividends, affecting their own purchasing power as well. So, taxes, sometimes, have unintended consequences, which policymakers must always consider,” he said.
The Manufacturers Association of Nigeria (MAN), expressing its concern about the excise duty on soft drinks, warned in a report that it would be counterproductive.
According to the report titled; ‘key considerations against excise on non-alcoholic beverages’, the government might collect projected N81bn revenue from excise duty on carbonated drinks between 2022 and 2025, but lose N197bn within the same period from other taxes, such as Value Added Tax and Company Income Tax from the manufacturers of soft drinks.
The report also said that introducing excise duty would cause the beverage sub-sector of the food and beverage industry to lose up to N1.9tn in sales revenue between 2022 -2025, due to the imposition of the new taxes with simultaneous adverse effects on jobs and supply chain businesses.