Manufacturers Fret Over ‘Sugar Tax’

Taxation

As reactions continue to trail last week’s introduction of excise duty of N10/litre on non-alcoholic, carbonated and sweetened beverages by the federal government, Adedayo Adejobi captures the fear of manufacturers that the new tax may drive some of them out of business

With the introduction of the N10/litre excise duty on carbonated

drinks, the pallet of Nigerians used to fizzy drinks will go sour, whilst manufacturers will be forced to increase the retail price, thus,dipping a hole in the already tight pockets of the groaning consumers.

Although in 2019, the Minister of Finance, Zainab Ahmed, had prepared the minds of Nigerians for a possible introduction of excise duty on carbonated drinks. Similarly, Comptroller-general of the Nigeria Customs Service (NCS), Hameed Ali, in 2020 also hinted at the collection of excise duty on imported soft drinks. Riding on the back of the new ‘Sugar Tax’ in section 17, and the 2021 Finance Act, both agencies of the federal government are set to raise excise duties and revenues from the carbonated drinks sector.

Taxation is a fiscal instrument in the hand of any government and Nigeria is not an exception. The implication, therefore, is that such an instrument could be used primarily as a tool to raise funds for the government. Aside from the objective of raising revenue, it could also serve the purpose of encouraging or discouraging consumption of certain commodities such as tobacco, imported brands etc.

According to the government’s explanation, the tax was introduced due to health considerations. Therefore, it was called the “Sugar Tax”.

The minister opined that carbonated drink is the main source of sugar consumption hence the need to introduce the N10 tax on every bottle of carbonated drinks.

According to a financial advisory expert and Executive Director,

DataPro Limited, Mr Oladele Adeoye, ‘’The first implication of this tothe producers will be the attendant confusion as to what volume of carbonated drinks will the tax cover. Carbonated drinks can be bottled in different sizes ranging from 33cl to 1 litre. Will the N10 tax be applied equally? What happens to taxation principles that tax burden should be borne equally regardless of class? Will I be paying N10 for consuming 33cl and the other guy is paying the same amount for consuming 60cl?”

Members of the Organised Private Sector (OPS), in a joint press conference last December advised the federal government against the increase which it said would further frustrate the manufacturers’ effort at supporting the revival of the economy.

MAN Fumes

Reacting to the development, the Manufacturers Association of Nigeria (MAN) and economic experts have warned that a new tax imposed on carbonated drinks would be counter-productive.

MAN had commissioned a report titled ‘key considerations against excise on non-alcoholic beverages’, projected that the government might collect 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 (VAT) and Company Income Tax from the manufacturers of soft drinks.

The report added 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.

Managing Partner, Stransact Partners, a Lagos-based independent audit, tax, and advisory firm, Mr Eben Joels said, ‘‘It becomes difficult to raise money through income sources and so the government has moved to tax expenditure which is a dangerous route. If the federal government invests in increasing the income tax pool, straightening and harmonising state and federal revenue approach to taxing business- that is where the money is. The money is in taxing incorporations and not individuals especially in a period like this. What are Nigerians gaining from this? Have they looked at other tax options? Can the FG collect its Federal income tax, or on behalf of the state? These are areas the government can explore.’’

When THSDAY contacted the Director-General, MAN, Segun Ajayi-Kadir, he also affirmed the content of the report saying, “the introduction of excise duty of N10/litre on non-alcoholic, carbonated and sweetened beverages, despite its potential overwhelming negative impact is rather unfortunate. The excise duty tax would affect the sub-sector, which has contributed significantly to the economy and taxes, despite the debilitating effects of naira devaluation, the inadequacy of forex, and the COVID-19 pandemic. The government’s revenue aspirations introducing this excise might not be realised in the long run.’’

He also noted that ‘‘government is estimated to generate an excise tax of N81bn 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. The move might lead to employee salary reduction, retrenchment, and general increase in prices of goods, thus putting the products out of the reach of the poor segments.’’

According to the Minister of Finance, ‘’Some analysts have always considered our projections unrealistic, but we have always insisted on the potentials that exist to grow independent revenues.’’

Meanwhile, some experts have argued that the revenue accruing to the federal government of Nigeria from taxation over the years has remained grossly insufficient to meet the expanding social and public spending requirements in the country. It is instructive to note that, the tax system is grossly inefficient as it is characterised by tax evasion, avoidance and record falsifications, which have led to consistent low tax revenue inflow. Gross inefficiency and leakages have hampered the amount of revenue realised from tax sources over the years, which has been affecting the economy negatively.

Expressing grave concerns over the effects of the development on the manufacturing sector, the Fiscal Policy Partner and Africa Tax Leader at PwC, Mr Taiwo Oyedele, said, “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.”

Nigeria’s Organised Private Sector has also called out federal government that it would not accept the 10 per cent increase slammed on carbonated drinks as it would lead to the collapse of the sector and create massive job losses.

The two unions in the sector, the Food Beverage and Tobacco Senior Staff Association (FOBTOB) and the National Union of Food Beverage and Tobacco Employees (NUFBTE) said they are mobilising their organs’ meetings to take appropriate action on government new decisions.

The unions said though they may not preempt the organs, the reaction may be in form of protests and total strike with the support of the trade centres like the Nigeria Labour Congress (NLC) and Trade Union Congress (TUC) that had earlier kicked against it.

President of FOBTOB, Jimoh Oyibo, said ‘‘the union has initially planned a protest but was advised against it by the employer’s body which thought that dialogue with the government would yield more positive action.’’

Lamenting on the increase among others would cause an increase in the cost of the products, lead to a reduction in the purchasing power of the masses, massive job losses, reduction in production capacity, and total closure of the companies.

“Government did not give a deep thought to the aftermath effect, we would not relax, we are likely going to protest or go on strike and show our displeasure to the supervising ministry, the Ministry of labour and employment.

In its reaction, NUFBTE said the action was counterproductive and tantamount to the government’s insensitivity to the plight of the Manufacturers who are presently finding it difficult to operate in the country.

The General Secretary of the union, Mike Olanrewaju, said the union will study the situation and react appropriately.

“This is the government’s insensitivity to the plight of Nigerian workers, it will cost nothing less than 2,000 to 3,000 direct job loss within a week as the companies would be forced to reduce production or not produce at all. We are not going to keep quiet, the NLC is being carried along, the leadership of the union will ponder on it to know the next line of action,” he said.

According to Adeoye ‘‘On the positives, it is no longer a news item that the Federal Government of Nigeria has revenue challenges. The year 2022 budget came with a deficit of N6trillion. The government needs money wherever it could be found. As a country, we have consistently relied on debt. World Bank and other domestic stakeholders have expressed concern on the capacity to service those debts. Therefore, any avenue to generate additional funding is a positive one for the government.’’