The Worries Of MAN On FG’s Excise Duty On Soft Drinks

Yemisi Izuora

The Director General of the Manufacturers Association of Nigeria, MAN, Segun Ajayi-Kadiri has listed several points Government should consider on the planned introduction of excise duty on soft drinks.

Read what he said.

The introduction of excise duty of N10/liter 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 are 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.

 

Furthermore, 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.

 

The revenue aspirations of government in introducing this excise may not be justified in the long run.   Let us look at it this way. The government is estimated to generate an excise tax of NGN 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 realized 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. 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 % 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

There will certainly be decline private households/ consumers purchasing power as they earn income mostly by supplying labor to the industry and from owning a share in industry capital. Household in turn use this earned income to purchase food, shelter and products from this manufacturing industries. 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

 

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.

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