N10/litre Tax On Soft Drinks: Nigeria’ll Lose Investments – MAN

The Manufacturers Association of Nigeria said on Thursday that 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 on Wednesday 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 subsector contributed the highest (38 per cent) of the total manufacturing sector to the GDP. It comprises 22.5 per cent of manufacturing jobs and generates more than 1.5 million jobs. So, this excise 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 per cent contraction in output and about 40 per cent drop in total industry revenues in the next five years.

He said, “The revenue aspirations of government in introducing this excise 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 VAT [Value Added Tax] raised by the sector and N54bn CIT [Company Income Tax] reduction between 2022 to 2025. This is not to mention the potential negative impact on manufactures/supply chain.”

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 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 per cent 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.”