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Manufacturers kick as FG imposes 10% excise tax to fight diabetes

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Nigerians will be paying a lot more for their fizzy drinks.

This is because there is a new policy on sugar control, and because the Federal Government is increasing its revenue base to include more non-oil products.

Mrs Zainab Ahmed, the Nigerian Minister of Finance, Budget and National Planning, said the Federal Government has introduced an excise duty of N10 per litre on all non-alcoholic, carbonated and sweetened beverages.

EditPro | Lagos Metropolitan newspaper Zainab Shamsuna, Minister of Finance, Budget & National Planning

She said this on Wednesday in Abuja at the public presentation and breakdown of the 2022 budget.

According to her, the charge on beverages is a new policy introduced in the Finance Act signed into law by President Muhammadu Buhari on Dec. 31, 2021 alongside the 2022 Appropriation Bill.

The National Assembly had raised the total 2022 budget figure from the proposed N16.391 trillion to N17.126 trillion.

The budget was passed with the crude oil benchmark increased from 57 dollars per barrel to 62 dollars per barrel.

Ahmed said the new ‘Sugar Tax’ was introduced to raise excise duties and revenues for health-related and other critical expenditures in line with the 2022 budget priorities.

She also said it was aimed at discouraging excessive consumption of sugar in beverages, which contributed to diabetes, obesity and other diseases.

Ahmed added that the Finance Act also raised excise duties and revenues for the health sector.

Reacting to the new excise regime, the Manufacturers Association of Nigeria (MAN) has said that the introduction of excise duty on non-alcoholic beverages will cause a 0.43 per cent contraction in output and about 40 per cent drop on total industry revenues in the next five years.

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Mr Segun Ajayi-Kadir, MAN Director-General, said this in Lagos while reacting to the introduction of N10 excise duty on carbonated drinks by the Federal Government on Wednesday.

Ajayi-Kadir explained that food and beverages contributed the highest at 38 per cent of the total manufacturing sector quota to the nation’s Gross Domestic Product (GDP).

He added that the sector comprised 22.5 per cent of manufacturing jobs and generated more than 1.5 million jobs.

“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 an 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. So, this excise would certainly cast a sunset to this performance,” he said.

The MAN DG stated that the revenue aspirations of the government in introducing this excise may not be justified in the long run.

He noted that the excise estimated to generate N81 billion between 2022-2025 would not be sufficient to compensate the corresponding government’s revenue losses in other taxes from the group.

Abdul-Kadir stated, “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 Corporate Income Tax reduction between 2022 to 2025.”

“This is not to mention the potential negative impact on manufacturers/supply chain. Nigeria is the 6th 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 warned.

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According to him, 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.”

“What is not realized by many is that excise begets high production costs which in turn adversely affect production levels and intimately results in dwindling profits. This will grossly impact the small and emerging business owners in the non-alcoholic beverage sector,” he said.

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