Tax On Soft Drinks: Nigeria’ll Lose Investments – MAN

Tax On Soft Drinks: Nigeria’ll Lose Investments – MAN
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Manufacturers Association of Nigeria has said the introduction of excise duty of N10 per litre on all non-alcoholic, carbonated and sweetened beverages will make Nigeria lose investments to other countries.

The Minister of Finance, Budget and National Planning, Zainab Ahmed, had announced the introduction of the new tax during the public presentation of the 2022 budget in Abuja.

The Director-General, MAN, Mr Segun Ajayi-Kadir, said in a statement that the affected subsector had contributed significantly to the economy and taxes, despite “The debilitating impact of naira devaluation, inadequacy of forex and the COVID-19 pandemic”.

It would appear that the goose that lays the golden eggs is being led to perdition. The food and beverage sub-sector contributed the highest, 38%, of the total manufacturing sector to the GDP. It comprises 22.5% of manufacturing jobs and generates more than 1.5 million jobs. So, this excise duty would certainly cast a sunset to this performance”, he said.

According to him, 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 said, “The revenue aspirations of the government in introducing this excise tax may not be justified in the long run. The government is estimated to generate an excise tax of N81bn between 2022 and 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 N142bn contraction in Value Added Tax,VAT, raised by the sector and N54bn Company Income Tax, CIT, reduction between 2022 to 2025. This is not to mention the potential negative impact on manufactures/supply chain”.

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Ajayi-Kadir said the N10/litre excise would lead to high production costs, which he said would adversely affect production levels and ultimately result in dwindling profits.

“This will grossly impact the small and emerging business owners in the non-alcoholic beverage sector”, he said.

According to him, Nigeria is the sixth-highest consumer of soft drinks 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 investors to take investments to other countries” , Ajayi-Kadir said.

He said a decrease in production levels or ability to purchase raw materials as a result of the introduction of excise tax would result in reduced profits for the supply chain players in the non-alcoholic beverage sector.

He expressed worry that the new tax would have an unpleasant effect on employment, households and consumers.

He said, “As seen from previous impact analysis, excise duty 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 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”.

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Similarly the Lagos Chamber of Commerce and Industry has urged the Federal Government to protect domestic manufacturers from unfair competition by foreign companies in the face of the high cost of production that will be triggered by the new excise duty on carbonated drinks.

The chamber also advised the government to use the revenue generated from the excise tax to improve the country’s grossly inadequate health infrastructure.

The Director-General, LCCI, Dr Chinyere Alumona, said this in a statement by the chamber on Thursday. According to her, since the government is insisting on the new tax, obliging it is inevitable.

If the President insists he wants it, we have to oblige him”, she said in the statement.

In the statement, some of the downsides of the new tax were stated to include decreasing demands and job loss.

In light of this, the chamber advised the government to protect those producing domestically by enforcing the prohibition of imported drinks.

The statement read in part, “The Federal Government has announced it will charge an excise levy of N10 per litre on all non-alcoholic carbonated sweetened beverages to discourage excessive sugar consumption and boost revenue.

“The immediate concerns are the likely increase in prices which may lead to a decrease in demand and, consequently, loss of jobs due to a reduction in production activities.

“The prohibition on imported drinks should be better enforced to protect domestic production from unfair competition in the face of the high cost of production in Nigeria”.

The LCCI affirmed its support for the government’s drive for more revenue and the pro-health considerations of stakeholders.

It, however, advised that the revenue accumulated should be used to improve the health sector, with an upward review of the budget allocation to the health sector in the next 10 years.

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The statement further read, “The chamber supports both the government’s revenue drive and the pro-health considerations of several stakeholders.

We, however, recommend that the realized revenue from these levies be channeled into improving the country’s grossly inadequate health infrastructure. The allocation to the health sector in the 2022 Federal Budget of N463bn should be reviewed upward to the region of a trillion naira invested into the sector in the next ten years”.

The chamber also expressed concern on the possibility of a hostile business environment for the private sector as government-owned enterprises are urged to meet revenue targets.

It also urged public health agencies to regulate the production of sugary drinks to lessen the adverse effect on human health.

The chamber is also concerned about the government’s stance on the enforcement of revenue targets on government-owned enterprises.

The operations of these Government-Owned Enterprises should not build up into a hostile business environment where the private sector will find it challenging to thrive.

And beyond the levying of taxes on carbonated drinks to force a reduction in consumption, we urge the various public health agencies to regulate the production of sugary drinks to reduce their negative effect on human health”, the statement read.


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