Amid health risks associated with the consumption of carbonated drinks in the country, the introduction of the N10 per litre excise duty introduced by the Federal Government has been described as a tool for revenue generation.

In an effort to reduce excessive consumption of carbonated drinks due to high sugar content and also to improve revenue generation, the Federal Government on Wednesdays 5th January, 2022 announced the introduction of excise duty of N10 per litre on all non-alcoholic, carbonated and sweetened beverages produced in Nigeria.

Zainab Ahmed, Minister of Finance, Budget and National Planning, disclosed this during a public presentation of the 2022 Appropriation Act in Abuja.

“There’s now an excise duty of N10/ per litre imposed on all non-alcoholic and sweetened beverages. And this is to discourage excessive consumption of sugar in beverages which contributes to several health conditions including diabetes and obesity. But also used to raise excise duties and revenues for health-related and other critical expenditures. This is in line also with the 2022 budget priorities,” the Minister said.

According to her, the new policy introduced is contained in the Finance Act signed into law by President Muhammadu Buhari on December 31, 2021. She said Apart from the new ‘Sugar Tax’ in section 17 of the new law, the 2021 Finance Act also raised excise duties and revenues for the health sector.

About Excise Duty

Excise duty is a tax charged on locally manufactured goods; levied at the time of manufacture. It is also a form of indirect tax on the sale or consumption of certain goods, products, services or activities such as tobacco, alcohol, narcotics, gambling etc., mainly to discourage their use and consumption.

With this policy, experts have predicted that the prices of carbonated drinks such as coca-cola, sprite and Fanta may spike across the country.

YOU CAN FOLLOW US ON FACEBOOK

In 2019, the federal government proposed the introduction of excise duty on carbonated drinks but due to the need for more deliberation and consultation on its implication, the policy was suspended.

About Products

Carbonated drinks commonly consumed in Nigeria are Coca Cola, Fanta, Sprite, Pepsi, Seven-up, among others.

Coca Cola

Coca-Cola is one of Nigeria’s largest non-alcoholic beverage makers which has operated in the country for about 135 years.
According to a report from Fitch Solutions, “In June 2021, Coca-Cola Nigeria reported a 300% increase in e-Commerce sales”

Alfred Olajide, Vice President and General Manager, Nigeria Operations at Coca-Cola Africa Operating Unit, admitted that the coronavirus outbreak inspired a change in consumer habits as shoppers have relied increasingly on eCommerce companies to deliver home staples, and the company sees this trend continuing post-pandemic, particularly for beverages.

During an interview with Bloomberg, Olajide said, “The first one month of Covid-19 was the pivot point” for e-commerce penetration in the company. We have more than tripled the e-commerce business that we have in our portfolio,” he concluded

Meanwhile, in August 2019, Coca Cola Hellenic Bottling Company (HBC) released its earnings for the first half of 2019, reporting a growth of 3.8%. The growth in the company’s net sales was driven by consumer demand within Nigeria and other locations.

According to a report, the US carbonated soft drink experienced impressive demand across the emerging markets in Africa and Europe.
This factor including strong demand in Nigeria resulted in a surge in the net sales revenue which hit 3.35 billion euros ($3.76 billion) for the six months ended June 28. Meanwhile, in the first quarter of the year, Coca-Cola HBC’s net sales revenue rose by 4.4% to 1.41 billion euros ($1.58 billion).

Pepsi

In 2019, PepsiCo said the company’s income stood at $7.31 billion, meanwhile, in February 2021, PepsiCo reported in its results for the fourth quarter and full-year 2020, that it’s net “income is $7.12 billion”

The company noted that sales from the Beverage unit in Nigeria increased by a low-single-digit, despite key disruptions to the supply chain.

Revenue Concerns

NCS Wants Excise Duty on Carbonated Drink to Improve Revenue Generation.
On September 1, 2021, the Comptroller-General of Customs Col. Hameed Ali (Rtd) at a public hearing on the 2022-2024 Medium Term Expenditure Framework (MTEF)and Fiscal Strategy Paper (FSP) in Abuja demanded for excise duties on carbonated drinks stressing that it will improve revenue generation in the country.
He advised that payment of excise duties should not be based on imports alone adding that goods produced domestically must also be added.
Ali said that the NCS is only authorized to collect excise duty on tobacco and alcoholic beverages. He said there was the need to also look in the direction of collecting excise from carbonated drinks to improve the revenue profile of the nation.

Health Concerns

Policy to Combat Obesity Epidemic and Diabetes in the Country.

The new policy, now referred to as ‘Sugar Tax’, is contained in the Finance Act signed into law by President Muhammadu Buhari on December 31, 2021.
Health groups have been campaigning for the imposition of sugar tax, the prevention of sugar-sweetened beverage producers’ advertisements to children and a mandatory warning label on sugar-sweetened beverages similar to cigarettes to make sure consumers know the product’s sugar levels and health risks.

Reactions

Manufacturers says Nigeria to lose more Revenue and Employment Opportunities

The Manufacturers Association of Nigeria (MAN) has warned that the re-introduction of Excise duty on Carbonated Drink will be counterproductive as the Federal Government stands to lose N197 billion in sales revenue between 2022 -2025, which is a 39.5 per cent loss, due to imposition of the new taxes with concomitant impact on jobs and supply chain businesses.

The Association has countlessly opposed the Federal Government’s plan to introduce excise duty on carbonated drinks. In 2019, the President of MAN, Mansur Ahmed, described the move by the government to impose more taxes on Nigerians as ill-timed, as it would further constrain the cost of manufacturers. He said efforts should be made towards developing critical infrastructure, especially power and transportation, to improve businesses before increasing and introducing new taxes.

He said, “We understand that the government is in dire need of revenue but at the same time, I believe they also need to bear in mind that under the present circumstances, excise duty will significantly further constrain the cost of manufacturers especially at a time when we are trying to encourage the use of local raw materials. Also, given the fact that the general situation in the market is still very bad. We are seeing an increasing level of warehouse stocked, which means that goods are not moving in the market. So we believe that these issues need to be weighed and the timing needs to be looked at”.

“The government should delay increase in some of these taxes until other areas of cost of production begin to come down. For instance, if we improve the infrastructure side especially in the area of power and transportation, then businesses will improve and government can then look for taxes”. He explained.

A report that was commissioned by the MAN on the effects of reintroducing excise duty on carbonated drinks has warned that the move would be counterproductive, saying the government could lose more revenue than they would collect with the reintroduction.
The report projected that the government might collect N81 billion revenue excise duty on carbonated drinks between 2022 and 2025, but might lose N197 billion within the same period from other taxes such as Value Added Tax (VAT) and Company Income Tax (CIT) that would have accrued to it from the manufacturers of soft drinks.
It further stated that the industry would achieve cumulative estimated revenue of N4.8 trillion between 2022 and 2025 if the excise duty would not be introduced. However, this amount is expected to, “decline by 39.5 per cent to N2.9 trillion with the introduction of excise taxes as consumption declines,” as has been underscored by the recent increase in VAT while “the unorganized sector will also increase prices, but may not necessarily pay the tax to the government.”
The report also claimed that the corresponding effect of reduced industry revenue on government revenue was estimated to be up to N142 billion with contraction in VAT raised by the sector and N54 billion CIT reduction between 2022 and 2025.
It therefore, cautioned that, “now is not the right time to introduce the proposed excise” and stated that, “full stakeholder consultation is recommended along with alternate proven strategies from other climes.”
It stressed that introducing excise on non-alcoholic beverages would have an adverse effect on the Nigerian economy and, “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.”
The stakeholders, therefore, asked government to suspend the planned re-introduction of excise on non-alcoholic beverages in 2022 and review it in 2023 while working with the industry to carry out an in-depth impact assessment fashioning out the best approach that drives value for all stakeholders.

The Chairman of the Organized Private Sector of Nigeria, Mr. Taiwo Adeniyi, explained recently that the excise duty on carbonated drink was removed in 2009, during the global financial crisis to aid the sustainability of businesses.

“We make bold to say that the economic situation which necessitated the suspension of the excise in 2009 has not abated. Businesses currently face greater hardship than what was obtained in 2009. The introduction of the tax will be counter-productive as it will lead to further stifling of businesses in that industry. We therefore, urge government to jettison the idea of reintroducing the excise duty on carbonated drinks,” said Adeniyi, who is also the President of Nigeria Employers’ Consultative Association (NECA).

Similarly, the Director-General of MAN, Mr. Segun Ajayi-Kadir, has described the proposed reintroduction of the excise duty as obnoxious and ill-timed.

He said: “The sector is already quite anxious about the imminent ill-advised re-introduction of excise, as well as a steep increase in the rate of excise on some products, including carbonated and non-alcoholic drinks and tobacco products. That will be counterproductive and the envisaged additional revenue may not be realized. Instead, we may start to witness dwindling profitability, a higher rate of business failure and predisposition to tax evasion. This is not to mention the disincentive to local and foreign investment.”

NUFBTE Warns About Job Loss over Excise Duty on Carbonated Drinks

In the same vein, The National Union of Food, Beverage and Tobacco Employees (NUFBTE) warned of massive job loss in the sector over the Federal Government’s increase on excise duty on carbonated drinks.
President of NUFBTE, Lateef Oyelekan, said Nigerians suffer the consequences as companies would have no choice but to lay off workers, reduce production lines or may even close down permanently.

While calling on the government to save their jobs and support the food sector to grow, he urged that the government should also create a conducive environment for companies to create more jobs for the citizens rather than overburden them with taxes.

He said: “The disadvantage of this is that it would increase the cost of production from the companies and this will be passed on to the consumers. It will invariably make the cost of these products go up and with the present inflation. It means that many Nigerians will not be able to afford it”.

Read Also: Onne Customs Processes over One Million Metric Tonnes of Cargo for Export in 2021

One Dies as Vehicle Conveying Smuggled Goods Evades Customs Arrest

Nigeria Customs Records Unprecedented Growth As It Generates Over N2 Trillion In 2021