The introduction of excise duty of N10/liter on non-alcoholic, carbonated and sweetened beverages by the Federal Government will likely cause a 0.43 per cent contraction in output and about 40 per cent drop in total industry revenues in the next five years.
The Manufacturers Association of Nigeria (MAN), which made this know while reacting to last week’s introduction of excise duty of N10/liter on non-alcoholic, carbonated and sweetened beverages, said the revenue aspirations of government in introducing the policy may not be justified in the long run.
MAN Director-General Mr. Segun Ajayi-Kadir said, for instance, that while government is estimated to generate an excise tax of N81 billion 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 N142 billion contraction in Value Added Tax (VAT) raised by the sector and N54 billion CIT reduction between 2022 to 2025. This is not to mention the potential negative impact on manufactures/supply chain,” he said.
Ajayi-Kadir added that what is not realised by many is that excise duty 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,” he stated.
According to the MAN DG, 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,” he said.
Ajayi-Kadir also drew attention to the fact that 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 of the introduction of the excise, despite strenuous evidence-based advice to the contrary. This will have unpleasant impact on employment, households and consumers,” he kicked.
He further pointed out that as seen from previous impact analysis, excise affects production outputs, revenue and profits, and this causes companies to pursue cost cutting measures to reduce the effect of diminishing revenue and profits by reducing employee salaries or retrenchment.
Ajayi-Kadir reminded the Federal Government that presently, the country’s unemployment rate is at about 33.3 per cent and this rate is projected to further increase.
He, therefore, said 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 decadence.
The MAN chief also said there will certainly be decline in 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 to raise prices of their products to higher rates thus shifting tax incident to consumers,” he insisted.
Manufacturers also said 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.
Pointing out, for example, that a quick meal is bread or gala and a bottle of soft drink, they argued that “an introduction of excise could lead to an increase in price, putting this food alternative out of the reach of the poor segments.”
Although manufacturers noted that the potential revenue gains are the basis for the introduction of this excise, despite its potential overwhelming negative impact, they described the move as “rather unfortunate.”
“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 sector contributed the highest (38 per cent) of the total manufacturing sector to the Gross Domestic Product (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,” manufacturers argued.