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‘New excise duty will contract manufacturing sector’s output by 0.43%’

By Femi Adekoya and Temitope Alebiosu
07 January 2022   |   2:36 am
With the introduction of excise duty of N10/litre on all non-alcoholic, carbonated and sweetened beverages by the Federal Government, the Manufacturers Association of Nigeria (MAN)

Minister of Industry Trade and Investment, Niyi Adebayo

With the introduction of excise duty of N10/litre on all non-alcoholic, carbonated and sweetened beverages by the Federal Government, the Manufacturers Association of Nigeria (MAN) has stated that the new duty would cause a 0.43 per cent contraction in output and about 40 per cent drop in total industry revenue in the next five years.

MAN Director-General, Segun Ajayi-Kadir, noted that with the new policy, the prices of carbonated drinks might spike across the country

Earlier on Wednesday, Minister of Finance, Budget and National Planning, Zainab Ahmed, announced the new policy during the public presentation of the 2022 budget.

MAN boss 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 added.

Also, the Centre for the Promotion of Private Enterprise (CPPE) has warned that the aggressive drive for revenue by agencies of government will put enormous pressure on investors in 2022.

The agency said beyond the regular tax authorities, other agencies of government might become more aggressive in their revenue drive and this would constitute an additional burden to investors in 2022.

The Director-General stated that the revenue aspirations of the government in introducing the new tax might 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.

“For instance, the corresponding effect of reduced industry revenue on government revenue 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 drink, but per capita consumption is low.

Ajayi-Kadir also said the new excise duty would “easily reduce production capacity”, causing manufacturers to struggle to meet investor commitments.

According to him, this would make investors take their investments to other countries.

“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,” he added.

“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.”