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‘Inflation, new excise duty, aggressive tax drive will undermine manufacturers in 2022’

By Femi Adekoya
13 October 2021   |   2:47 am
With the presentation of the 2022 budget by President Muhammadu Buhari to the National Assembly, local producers have raised concerns about some proposals and underlying challenges

MAN’s President, Mansur Ahmed

With the presentation of the 2022 budget by President Muhammadu Buhari to the National Assembly, local producers have raised concerns about some proposals and underlying challenges that may undermine businesses, next year.

According to the Manufacturers Association of Nigeria (MAN), Lagos Chamber of Commerce and Industry (LCCI) and the Centre for Promotion of Private Enterprise (CPPE), prevailing challenges such as inflation and aggressive tax drive, alongside proposals for excise duty on carbonated drinks, will push consumers and producers alike to the edge if not well managed.

The Director-General of MAN, Segun Ajayi-Kadir, who reviewed the proposed budget from the manufacturers’ perspectives, said that it came with very few highs and a number of lows.

The highs, according to him, include the proposed capital expenditure of N5.35 trillion, which resonated well with the MAN’s cry for the need to prioritise infrastructure development that would lay the foundation for Nigeria’s sustainable economic development.

He said: “In summary, the highs principally centre around the proposed aggregate capital expenditure of N5.35 trillion is 32.64 per cent of the total expenditure as against the N4.37 trillion and 32.2 per cent respectively of 2021 budget.

“This means that the sum allotted to capital expenditure will increase appreciably in 2022, particularly for the building materials and construction segment that has higher multiplier effects on the manufacturing sector.

“No doubt, this buttresses the fact that government intends to continue to upscale the development of infrastructure across the country. This is a development that MAN considers laudable because it resonates with our yearly advocacy submission to the Government on the need to prioritise infrastructure development for sustainable economic growth. It will also increase production in the real sector of the economy.”

Nevertheless, the MAN boss also observed that the budget, as proposed, has its lows that would have a telling effect on the manufacturing sector.

He identified the top three low points of the proposed 2022 budget as the proposed excise duty on carbonated drinks; the likelihood of increased drive for collection of taxes and levies, which might entrench multiple taxation and untoward means of collection all in the bid to increase non-oil revenue generation that would cover the deficit side of the proposed budget, and thirdly, the suspicion that the highly ambitious assumption of 13 per cent inflation rate in the budget might not hold water, especially, when the prevailing inflation rate as at August 2021 stood at 17.01 per cent.

Ajayi-Kadir said: “The proposed excise duty on carbonated drinks means further strangulation of the manufacturing sector that is already burdened with multiplicity of taxes/levies and fees. The industries operating in this segment are already operating with extremely low margins, so the planned excise duty will push most of them over the edge. We risk an unprecedented buildup of unplanned inventory, downsizing of the labour force and factory closures. All these would vitiate the revenue expectations of governments and therefore counterproductive.”

He argued further that the increased drive for collection of taxes and levies would border mostly on a multiplicity of taxes and untoward means of collecting them.

He said: “The current unbridled avalanche of taxes, fees and levies from the three tiers of government and their overzealous regulatory agencies may be compounded. Most often these worrisome scenarios are contrasted with little attention to supporting infrastructure and facilitation of the productive sector.”

He added that “the highly ambitious assumption of 13 per cent inflation rate, when the prevailing rate as at August 2021 stood at 17.01 per cent and government is yet to address the incessant crises between the herdsmen and farmers and other insecurity conditions that contributes significantly to food scarcity that evidently fuel inflation in the country.”

Ajayi-Kadir said that the budget’s implications for the manufacturing sector reflected the need to support its implementation with a more production centric monetary policy that would crash interest rates to guarantee positive results.

He said that the transmission mechanism of seamless access to long term funds at an affordable rate would naturally guarantee expansion in manufacturing investment.

The Chief Executive Officer of the Centre for Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, urged the Federal Government to refrain from imposing new excise duties on the manufacturing sector. The sector, according to Yusuf, is currently grappling with too many macroeconomic and structural challenges already.

He also observed that the assumptions the proposed budget was based on were generally realistic but for the exchange rate and oil output assumptions, which did not reflect the current realities on the ground.

He observed that the major worry around the 2022 budget would be fiscal sustainability, especially in the context of recent trends of weak revenue performance that had consistently fallen significantly below targets.

On its part, the Lagos Chamber of Commerce and Industry (LCCI), expressed concern that the items for which more funding would be sought are recurrent expenditures.

The LCCI said: “We understand the government may be under pressure regarding these recurrent expenses, but it is not best practice to borrow for consumption.

“Since revenue fundamentals are currently weak, the ideal thing is to reduce the cost of borrowing, specifically, the high deficit and debt cost projected in the revised federal budget. The Federal Government should focus more on non-interest asset-linked securities as these unlock revenue and growth in the long term. The Federal Government should allow the private sector to invest in some infrastructure projects that are commercially viable to generate revenue to fund her budget instead of debt financing.”

It stated that the current push for more revenue should not compel the government owned businesses (GOEs) to undermine the health of the business environment in the pursuit of revenue targets.

It also welcomed the government’s commitment to supervise the spending of the GOEs to curtail any form of wasteful spending. “There should be a strong corporate governance framework and strict monitoring mechanisms to supervise spending by the GOEs restricting them to the approved 50 percent spending limit from their generated revenues,” the LCCI said.