Excise Duties On Soft Drinks, Others: Why FG Should Rethink

By Kenneth Jukpor

Excise Duties On Soft Drinks, Others: Why FG Should Rethink

The federal government’s efforts to expand its revenue generating sources is expected to lead to the re-introduction of excise duty on the production of soft drinks, plastic tiles, tissue paper, water and some other products in the country.

Nigeria Customs Service (NCS) had proposed the re-introduction of excise duty on the production of soft drinks and other specified items in the country at a recent interaction with the National Assembly on the 2022–2024 Medium Term Expenditure Framework [MTEF].

Subsequently, in the recent tour of the Customs commands under Zone A Headquarters by the new Zonal Coordinator, Assistant Comptroller-General, ACG Modupe Aremu has inspired excitement at commands saddled with collecting excise duties as she charged the Area Command leaderships to be proactive by commencing findings on the factories producing the new products to be included in excise duty collection.

Her words: “I want you to hit the ground running even before the government gives the go-ahead. You are to do a census of how many factories we have here, especially companies producing carbonated drinks and other products. We need to have the figures. It’s not when the government gives the approval for collection that you start running about. I expect that by now your Command will have a comprehensive list of all these companies.”

Our correspondent observed that at the Lagos Industrial Area Command in Festac and the Ogun II Area Command in Abeokuta, the officers grinned delightfully at the development which would mean more activities and higher revenue collection; however, experts posit that the effects of this new policy may have far more dilapidating for the nation’s economy.

Analysts have lamented that Customs are ill-prepared for the move and haven’t done sufficient findings on the affected products; arguing that there wouldn’t be need to compel Area Commands to make further findings because the Customs Service move to collect excise on the items should have stemmed from its statistics on the volume of such companies and their profit margins.

Speaking with our correspondent, an economic expert and immediate-past Director General of Lagos Chamber of Commerce and Industry (LCCI) Dr. Muda Yusuf described the proposal as; “ill-timed, insensitive and most inappropriate given the prevailing harsh economic and business conditions. The citizens and the business community are experiencing galloping and volatile inflationary conditions which are unprecedented. “

He opined that the proposal is also a negation of the economic recovery and job creation aspirations of the federal government because many upcoming small businesses in the beverage sector would suffer financially with this proposal.

“The millions of micro enterprises in the soft drinks’ distribution chain will be adversely impacted by the imposition of the excise tax. This is detrimental to the job creation and poverty reduction commitment of President Muhammadu Buhari. Nigerian manufacturing companies, and indeed most investors, are going through tremendous stress at the moment. They are currently grappling with serious macro-economic challenges and structural constraints impacting capacity utilization, productivity and competitiveness. This is affecting sales, turnover, profitability, shareholder value and the sustainability of investments,” he said.

The norm globally at this time is to provide incentives for industries to aid their recovery from the shocks of the pandemic and escalating costs.

“We cannot afford to be doing the exact opposite. Manufacturers, across all product segments need a respite, especially in the light of the unprecedented escalation of production and operating costs,” he added.

On his part, a finance expert and member of the Nigerian Economic Summit Group (NESG), Dr. Ikenna Nwosu asked Customs to explain the justification for the reintroduction of excise duties on the concerned items.

According to him, the move by Customs isn’t necessarily a wrong or bad one; the problem is that the Service is yet to argue with strong reasons to show the essence of collecting duties on the items which would increase the cost of products in the nation’s already inflated market.

“There are two key things that I would like Customs to explain; the first one is the justification for the move. Collection of excise duty is a good thing anywhere in the world, but what is the justification for it on these particular products? Another thing is the aspect of stakeholders’ engagement which is paramount in making such decisions. There ought to have been robust stakeholder’s engagement on this. Customs shouldn’t just impose because there would be cost implications for this move and the final consumer bears the brunt,” he said.

Meanwhile, a top source at Manufacturers Association of Nigeria (MAN) who preferred anonymity also kicked against the move, lamenting that manufacturers in the country are already grappling with numerous challenges.

“The economy is still at a recovery phase, many manufacturing companies are yet to recover from the shocks and dislocations inflicted by the pandemic and the recession that followed. Manufacturing contribution to GDP is still less than ten percent.  The growth recorded in the sector in the second quarter of 2021 was a mere three percent (3%). Given the strategic importance of manufacturing to an economy, what the sector needs at this time is more stimulus to ensure better contribution to the GDP,” he said.

He equally noted that manufacturers are currently contending with a severe crisis resulting from liquidity in the foreign exchange market and sharp depreciation in the exchange rate which is impacting adversely on the cost of production.

“We are not able to import vital raw materials, a situation which is severely inhibiting their production and productivity. There is an intense pressure on cost of production arising from numerous structural bottlenecks. This situation is creating sustainability challenges for investors in the sector, especially those in the SME segment. They have experienced significant spikes in the cost of raw materials, cost of fund, high import duty, elevated energy cost, prohibitive cost of transportation and high cost of logistics. A huge proportion of these costs cannot be passed on to the consumers because of high consumer resistance,” he added.

It is pertinent to point out that Nigeria’s economy is currently characterized by weak purchasing power which is taking a huge toll on sales and turnover of many manufacturers, leading to high inventory of manufactured goods.

Many manufacturers are currently struggling with unfair competition, especially from products imported from Asia which have flooded the Nigerian market, largely because of the porosity of the borders. These imports are often much cheaper than goods produced locally.

Energy cost is currently at an all time high, the cost of diesel is already at the threshold of three hundred naira (₦300) per litre as against two hundred naira (₦200) per litre a year ago. The cost of gas is on the increase, availability of gas is an issue.  Industrialists are also experiencing sharp increases in electricity tariffs provided by the Electricity Distribution Companies, the Discos.

The cost of logistics has continued to be on the upward trend. Some of the reasons for this are the state of the roads, the limited freight capacity of the railway system, the crisis situation at our major ports, the traffic gridlock around the Lagos ports, the numerous checkpoints around the ports and beyond.

As Nigeria prepares for the African Continental Free Trade Area (AfCFTA), new excise duties on products that should also compete in the region would leave the country more disadvantaged as the cost of producing these items continue to increase with Nigerians unable to compete with other nations.

Given these challenges, the proposition to re-introduce excise duties on a segment of the food and beverage industry should be put on hold.

The excise duty proposition is not consistent with the desire of Mr. President to create jobs and to lift hundred million people out of poverty in ten years. If anything, it is a negation of the President’s aspiration on job creation and alleviation of poverty.

The National Assembly and the Federal Ministry of Finance would have to put on hold any move to impose excise duty on any segment of the Nigerian manufacturing sector.

Manufacturers, including soft drinks producers, are already paying numerous taxes and levies which put a lot of pressure on them. Some of the taxes and levies that are already being paid include: corporate income tax of 30%, education levies of 2%, VAT 7.5%, withholding tax, land rent, environmental tax and numerous unofficial taxes.

There are also a multitude of fees and levies imposed by many other government agencies at the federal, state, and local government levels.  The appeal is that the Nigeria Customs Service and the National Assembly should have a rethink on this matter.

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