The Manufacturers Association of Nigeria has condemned the introduction of excise duty of N10/litre on all non-alcoholic, carbonated and sweetened beverages by the Federal Government.
It described the introduction as unfortunate, as it would only increase tax payable by the manufacturers which would be invariably transferred to consumers whose disposable income had already shrunk.
MAN spoke through its Director-General, Dr Segun Ajayi-Kadir in a statement made available to our correspondent in Lagos, arguing 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 the COVID-19 pandemic.
The federal government has announced the introduced an excise duty of N10/litre on all non-alcoholic, carbonated and sweetened beverages in Abuja on Wednesday.
The Minister of finance, budget and national planning, Zainab Ahmed, announced this during the public presentation of the 2022 Appropriation Act in Abuja.
According to her, the new policy introduced is in the Finance Act signed into law by President Muhammadu Buhari on December 31, 2021.
In 2019, Zainab Ahmed, the minister of finance, had announced that the government may introduce excise duty on carbonated drinks.
In 2020, Hameed Ali, comptroller-general of the Nigeria Customs Service (NCS), had proposed the collection of excise duty on soft drinks.
Ajayi-Kadir had said, “Straightaway, I would like to say that the introduction of excise duty of N10/litre on non-alcoholic, carbonated and sweetened beverages, despite its potential overwhelming negative impact is rather unfortunate.
“There is no doubt that the potential revenue gains is the basis for the introduction of this excise
“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 the COVID-19 pandemic.
“The food and beverage contributed the highest (38%) of the total manufacturing sector to the GDP!
“It comprises 22.5% of manufacturing jobs and generates more than 1.5million jobs. So, this excise would certainly cast a sunset to this performance.”
He stated further that recent studies have shown that Introducing excise on non-alcoholic beverages “is likely to cause a 0.43% contraction in output and about 40% drop in total industry revenues in the next five years.”
He argued that the revenue aspirations of government in introducing this excise might not be justified in the long run.
He added, “Let us look at it this way. The government is estimated to generate an excise tax of NGN81bn 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.
“For instance, the corresponding effect of reduced industry revenue on government revenues is estimated to be up to NGN142bn contraction in VAT raised by the sector and NGN54bn CIT reduction between 2022 to 2025.
“This is not to mention the potential negative Impact on Manufactures/Supply Chain.
“What is not realised by many of that excise begets high production costs which in turn adversely affect production levels and intimately result in dwindling profits.
“This will grossly impact the small and emerging business owners in the non-alcoholic beverage sector.
“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 investor to take investments to other countries.
“A decrease in production levels or ability to purchase raw materials as a result of the introduction of excise tax will result in reduced profits for the supply chain players in the non-alcoholic beverage sector.
“One is particularly worried about the ripple effect on the introduction of the excise, despite strenuous evidence-based advice to the contrary.
“This will have unpleasant impact on employment, households and consumers.
As seen from previous impact analysis, excise affects production outputs, revenues and profits.”
Ajayi-Kadir noted that this would cause companies to pursue cost cutting measures to reduce the effect of diminishing revenue and profits by reducing employee salaries or retrenchment.
He noted that oresently, the country’s unemployment rate is at about 33.3 per cent and at this rate it is projected to further increase.
He said 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.”
Ajayi-Kadir explained further that 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.
He added, “Lastly, let us not forget that many times, non-alcoholic beverages serve as a quick source of carbohydrate and nutrients in the absence of actual food for the average low income earner.
“For example, a quick meal is bread or gala and a bottle of soft drink. However an introduction of excise could lead to an increase in price putting this food alternative out of the reach of the poor segments.”
