Yemisi Izuora
The Manufacturers Association of Nigeria, MAN, has again cautioned the Federal Government of the 2023 Fiscal Policy Measures (FPM) by the Federal Ministry of Finance, Budget and National Planning, saying its consequences would be dire.
At a media parley on Tuesday in Lagos, Otunba Francis Meshioye, President, Manufacturers Association of Nigeria (MAN), reminded the Government that already, the manufacturing sector is in acute recession.
Our Correspondent reports that on the 2nd of May 2023, the MAN, issued a press statement in reaction to the recently released 2023 Fiscal Policy Measures (FPM) by the Federal Ministry of Finance, Budget and National Planning.
Oriental News recalls that the MAN, had raised significant concerns about the
provisions of the 2023 FPM, including the excessive increase in excise on
beverages and tobacco and the introduction of a tax on Single Use Plastics
(SUP), amongst others.
However, on Tuesday, Meshioye, use the opportunity to elaborate on its concerns with the exorbitant increase in excise on beverages and tobacco and reiterate its position on the Single Use Plastics tax.
Meshioye, recalled that the Government initiated a 3-year excise roadmap in 2018, after extensive consultation with the industry, and the roadmap ran successfully until its conclusion in 2021, without any change or issues.
This enabled the industry to successfully plan its operations, given the certainty in excise. In 2021, the government retained the excise rates for 2020/21 up until May 2022, while it utilized the 1-year period to engage extensively with industry to decide on a revised roadmap.
But followed this engagement, the Government released the 2022
FPM with a revised 3-year excise roadmap which, though providing for higher
excise rates, still took into consideration the potential impact on the industry.
He said however , that barely five months into the implementation of the 2022 excise roadmap, the industry became apprised of plans by the Government to further increase excise rates.
He said the industry engaged with the Government and by the end of 2022, had
the informal understanding from these engagements that the excise rates for
2022/23 would be retained for 2023/24.
This understanding was further confirmed at a meeting held between the Manufacturers Association of Nigeria MAN and the Minister of Finance, Budget and National Planning, which held on 29th March 2023.
He explained that at the meeting, the Minister assured representatives of MAN that there would be no increase beyond the prescheduled increase for 2023, as contained in the 2022 roadmap. In effect, the excise increases in the 2023 FPM are ‘an increase on an increase’, since there was already an approved increase for 2023.
Issues with the excise increase as contained in the 2023 FPM.
He said unfortunately, the increase is coming at a time when the manufacturing sector is immersed in unprecedented crisis and an acute recession, due to extraordinary challenges, namely: sustained scarcity of naira (which has led to a crash in consumer purchases); limited access to foreign exchange (which has led industry to purchase foreign exchange from the parallel market, thereby increasing costs); record inflation (which further drive-up cost of operation and prices of products) and a struggling economy.
According to him, These extraordinary challenges have led to a massive
decline of -169% in profit before tax for the brewing sector in Q1 2023. Industry
turnover for non-alcoholic beverages and tobacco declined by -15%, while gross
profit and profit before tax declined by -31% and -96% within the same period,
respectively. The Naira scarcity and limited access to foreign exchange have
exacerbated the continued impact of systemic challenges such as high cost of
operations, multiplicity of taxes, limited electric power supply and
infrastructural challenges.
He further noted that the Nigerian manufacturing sector recorded a 36 per cent downturn in profit margins from 2021 to 2022 and over 400 per cent increase in energy costs, further constraining growth of the sector.
In addition, the tobacco sector have actively began to reduce its export production from Nigeria as it has over N39bn+ trapped in Export Expansion Grant incentive not yet released to it by the federal Government to manage its operations.
He therefore advised that this is not the time to impose additional increases in excise, adding that the rate of excise increase is exceptionally excessive.
“The rate of increase is exceptionally excessive and not consistent with best
practice globally.
“For instance, the excise for beer was effectively increased by
about 200%, translating to a tripling of excise on the product. This is coming
against the backdrop of the huge tax burden on the tobacco and beverage sectors,
with the tobacco industry being taxed 5 times more than the average for other
industries.” he said.
The MAN president further added that significant low sales volumes will lead to business restructuring and a reduction in investment across the impacted sectors.
He said, “The manufacturing sector has been struggling with crashing sales, mainly
attributable to the sustained naira scarcity in recent times. A continuing decline
in sale volumes will necessitate production cuts and a re-evaluation of
investments in the sector. Specifically, if sales proceeds can no longer sustain
business overheads and operating expenses, businesses will be forced to scale
down their operations which would result in factory closures, job losses, a
decline in exports and much more.
“It is instructive to note that the Excise increase is a direct attack on Foreign
Direct Investment (FDI). The National Bureau of Statistics (NBS) three-year
trend shows an FDI decline. It is important to Note the negative decline in 2022,
with the biggest decline since the implementation of the 2022 roadmap. The
World Bank noted a 59% fall in FDI over the last 11 years with an FDI
depreciation from $5.97bn in 2010 to $2.45bn in 2021. Data from the National
Bureau of Statistics (NBS) showed that FDI into Nigeria fell by 33% in 2022. FDI
decline would continue in this trajectory should the excise increase be
implemented as planned in June 2023.”
Speaking on Low Tax Revenue to Government, he said the ultimate burden on consumer good is usually passed to Consumers whose disposable income are already stretched, adding, “Consequently, consumers will begin to
source alternative products from unapproved channels, especially the illicit
market in line with their declining disposable income. For instance, Illicit trade
in tobacco products would most significantly spike from its current levels of 15%
to undesirable levels of above 50% of the sector.”
He warned that decline in profitability of the industry will result in a decline in the industry’s total tax contribution to the government, because companies income tax (CIT), value added tax (VAT) and education tax are directly tied to the performance
and profitability of the company. In Q1 2023, while tobacco manufacturer’s
contribution to excise grew by 7%, its VAT contribution dropped by -36%
compared to the same period in 2022.
The president also stated that the manufacturing sector’s value chain will be severely impacted.
“Companies in the affected industries support other businesses in their value
chain, cutting across agriculture, logistics, bottling, labelling and packaging
businesses, as well as factory and office staff, distribution, wholesale and retail
businesses, catering for over 950,000 direct and indirect employees. For instance,
over 37,000 sorghum farmers rely on the brewing sector for their
livelihood. Unemployment rate which stands at 41%, puts about489,000
existing jobs at risk and which will further widen the unemployment gap.” he also noted.
According to him, a crash in sale volumes and consequent cuts in production will severely impact these businesses in the value chain, which will have a multiplier effect on the national economy. For instance, supplier transactions in the sector declined by over N260 billion by the end of 2022, when compared to 2021.
He therefore cautioned that retaining the 2023 FPM will have a negative signalling effect on current and prospective investors.
“The 2018 roadmap was excellently conceived and executed, and the federal
government was faithful to its commitments for the 3-year duration. This
enabled the industry to plan its operations efficiently. It also engendered stability
and certainty within the sector, which are key for economic growth. Reneging
on the 2022 roadmap within a year of its execution, (and so significantly, in spite
of the serious implications of this action), will send negative signals to current
and prospective investors in Nigeria, and thereby damage investor confidence.
This will NOT be a good legacy for the current and outgoing administration.
“The total excise derivable from the excisable sector is insignificant when
compared to Nigeria’s revenue needs.
The revenue need of the government has been mooted as a reason for the excise
increase. However, the total excise receivable from the sector is insignificant
when compared to Nigeria’s revenue needs. The total excise received in 2022 was
about N60billion. With the announced increases, excise receivable in 2023 is
unlikely to exceed N150billion, which, while an exponential increase from the
current, is insignificant when compared to the N12 trillion deficit in the 2023
budget.” he noted.
The president also reminded Government, that implementation period provided for in 2023 FPM is contrary to the National Tax Policy
He said, “The 2023 FPM stipulates 1st June 2023 as the implementation date for the new
excise. This runs contrary to the National Tax Policy, which requires a minimum
of 90 days before the implementation of tax changes.
Concerns with the Single Use Plastics Tax
“We would also like to use this opportunity to reiterate our concerns about the
Single Use Plastics tax. Our primary concern is that it does not appear to have a
basis in law, as it is not provided for under the Customs, Excise, Tariff, etc
(Consolidation) Act (CETA), unlike beverages and tobacco. The tax will also
further fuel inflation and weaken consumer purchasing power, without
achieving the desired climate change objective.”
He therefore asked Government to suspend the 2023 FPM on excise duty and retain the 2022 -2024 excise duty roadmap as approved in the 2022 FPM, to foster stability in the affected sectors and their value chain, in the interest of the national economy.
The MAN also called for reversal of the tax on Single Use Plastics and engage with relevant stakeholders to facilitate ongoing initiatives, which have a better prospect of achieving the desired environmental objectives.
A good example of this is the Food & Beverage Recycling Alliance, approved by the federal government.
He urged Government to consider the input from the sector and other critical stakeholders, alternative measures to achieve revenue and other objectives of the government in a sustainable manner.
