Excise Duty of N10/Litre by FG on all Beverages Negate Sector‘s Contribution to GDP

The Manufacturers Association of Nigeria (MAN) has said that the introduction of excise duty of N10/litre on non-alcoholic, carbonated and sweetened beverages, despite its potential overwhelming negative impact is rather unfortunate.

This was disclosed in a statement issued by the Director General MAN, Segun Ajayi-Kadir, mni, noting 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.

Ajayi-Kadir pointed out that there is no doubt that the potential revenue gains are the basis for the introduction of this excise, but raised an alarm that the goose that lays the golden eggs is being led to perdition.

The DG MAN stated that the food and beverage contributed the highest (38%) of the total manufacturing sector to the Gross Domestic Product, (GDP) which comprises 22.5% of manufacturing jobs and generates more than 1.5million jobs, adding that the excise duty would certainly cast a sunset to this performance.

He cited recent studies which 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.

Accordingly, he said the revenue aspirations of government in introducing this excise may not be justified in the long run.

“Let us look at it this way. The government is estimated to generate an excise tax of NGN81bn 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 NGN142bn contraction in VAT raised by the sector and NGN54bn CIT reduction between 2022 to 2025. This is not to mention the potential negative impact on Manufactures/Supply Chain.

“What is not realized by many of that excise 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 emphasized.

He disclosed that Nigeria is the 6th highest consumer of soft drink but per capita consumption is low, stressing that introducing excise will easily reduce production capacity causing manufacturers to struggle to meet investor commitments as well as cause investor to take investments to other countries.

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

He expressed his worry about the ripple effect on the introduction of the excise, despite strenuous evidence-based advice to the contrary, adding that this will have unpleasant impact on employment, households and consumers.

He posited that from previous impact analysis, excise affects production outputs, revenues and profits.

Ajayi-Kadir explained that this causes companies to pursue cost cutting measures to reduce the effect of diminishing revenue and profits by reducing employee salaries or retrenchment.

In his words: “Presently, the country’s unemployment rate is at about 33.3 % and at 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.

“There will certainly be decline 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 raise prices of their products to higher rates thus shifting tax incident to consumers,” he said.

He affirmed that 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, adding that a quick meal is bread or gala and a bottle of soft drink.

Consequently, he said that an introduction of excise could lead to an increase in price putting this food alternative out of the reach of the poor segments.