Dike Onwuamaeze
A report that was commissioned by the Manufacturers Association of Nigeria (MAN) on the effects of reintroducing excise duty on carbonated drinks has warned that the move would be counterproductive, saying the government could lose more revenue than they would collect with the reintroduction.
The report, which was titled, “Key Considerations Against Excise on Non-alcoholic Beverages,” projected that the government might collect N81 billion revenue excise duty on carbonated drinks between 2022 and 2025, but might lose N197 billion within the same period from other taxes such as Value Added Tax (VAT) and Company Income Tax (CIT) that would have accrued to it from the manufacturers of soft drinks.
The report also warned that reintroducing excise duty would cause the beverage sub-sector of the food and beverage sector to lose up to N1.9 trillion in sales revenue between 2022 -2025, which is a 39.5 per cent loss, due to imposition of the new taxes with concomitant impact on jobs and supply chain businesses.
It stated: “Total projected receipt is N81 billion if the excise tax is reintroduced on non-alcoholic beverages at N10 per litre. But will not be sufficient to compensate the corresponding government’s revenue losses in other taxes from the sub-sector as government may lose up to N197 billion in VAT and CIT revenues occasioned by drop in the industry’s performance.”
It further stated that the industry would achieve cumulative estimated revenue of N4.8 trillion between 2022 and 2025 if the excise duty would not be introduced. However, this amount is expected to, “decline by 39.5 per cent to N2.9 trillion with the introduction of excise taxes as consumption declines,” as has been underscored by the recent increase in VAT while “the unorganised sector will also increase prices, but may not necessarily pay the tax to the government.”
The report also claimed that the corresponding effect of reduced industry revenue on government revenue was estimated to be up to N142 billion with contraction in VAT raised by the sector and N54 billion CIT reduction between 2022 and 2025.
It therefore, cautioned that, “now is not the right time to introduce the proposed excise” and stated that, “full stakeholder consultation is recommended along with alternate proven strategies from other climes.”
It stressed that introducing excise on non-alcoholic beverages would have adverse effect on Nigerian economy and, “is likely to cause a ~0.43 per cent contraction in output and about 40 per cent drop in total industry revenues in the next five years.”
It added: “Therefore, introducing excise will presumably lead to an increase in prices and a ~0.43 per cent decline (at compound rate) in total volume sold between 2022 and 2025.”
It further stated that introducing excise taxes would also have adverse impact on employment, households and consumers. “As seen from previous impact analysis, excise affects production outputs, revenues and profits. This causes companies to pursue cost cutting measures to reduce the effect of diminishing revenue and profits by reducing employee salaries or retrenchment.
“Presently, the country’s unemployment rate is at about 33.3 per cent and at this rate is projected to further increase. A further cut in jobs for an industry that employs over 1.5 million people directly and indirectly will worsen the unemployment position in the country resulting in an increase in social vices and moral decadents.
“An introduction of an additional tax will cause manufacturers in a bid to offset tax and maintain profit raise prices of their products to higher rates thus shifting tax incident to consumers. As this potential increase in price does not lead to an increase in household income, there will be a decline in the purchasing powers of consumers,” the report said.
The stakeholders, therefore, asked government to suspend the planned re-introduction of excise on non-alcoholic beverages in 2022 and review it in 2023 while working with the industry to carry out an in-depth impact assessment fashioning out the best approach that drives value for all stakeholders.
The Chairman of the Organised Private Sector of Nigeria, Mr. Taiwo Adeniyi, explained recently that the excise duty on carbonated drink was removed in 2009, during the global financial crisis to aid the sustainability of businesses.
“We make bold to say that the economic situation which necessitated the suspension of the excise in 2009 has not abated. In fact, businesses currently face greater hardship than what obtained in 2009. The introduction of the tax will be counter-productive as it will lead to further stifling of businesses in that industry.
“We therefore, urge government to jettison the idea of reintroducing the excise duty on carbonated drinks,” said Adeniyi, who is also the President of Nigeria Employers’ Consultative Association (NECA).
Similarly, the Director General of MAN, Mr. Segun Ajayi-Kadir, has described the proposed reintroduction of the excise duty as obnoxious and ill-timed.
He said: “The sector is already quite anxious about the imminent ill-advised re-introduction of excise, as well as steep increase in rate of excise on some products, including carbonated and non-alcoholic drinks and tobacco products.
“That will be counterproductive and the envisaged additional revenue may not be realised. Instead, we may start to witness dwindling profitability, higher rate of business failure and predisposition to tax evasion. This is not to mention the disincentive to local and foreign investment.”
