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The tax on carbonated and sweetened beverages

By Editorial Board
21 February 2022   |   3:55 am
The introduction of a new tax of N10 per litre excise duty on all non-alcoholic, carbonated and sweetened beverages by the Federal Government expectedly stirred up an interesting controversy between the government and the Manufacturers Association...

The introduction of a new tax of N10 per litre excise duty on all non-alcoholic, carbonated and sweetened beverages by the Federal Government expectedly stirred up an interesting controversy between the government and the Manufacturers Association of Nigeria (MAN) and economic experts on one hand; and the government on the other. According to Zainab Ahmed, the Minister of Finance, this position is in accordance with the dictates of Section 30 of the Finance Act signed into law by President Muhammadu Buhari on December 31, 2021.

Various arguments have been presented by government in support of this new tax. First is the prevailing argument by the Federal Government that it needs more revenue to run its annual budgets. This has now come to be a recurring narrative of the Buhari administration. Second, according to Ahmed, one of the aims of the new tax policy is “to discourage excessive consumption of sugar in beverages which contributes to a number of health conditions including diabetes and obesity.” That sounds quite humanitarian. Probably, this seems to suggest that the Minister of Finance has now added aspects of the health portfolio to her huge plate of economic governance and fiscal sustainability. Not many will agree with government on these two points. Obviously, the Manufacturers Association of Nigeria does not. In its vociferous rejection of this government narrative, it went ahead and commissioned a report detailing the effects of re-introducing excise duty on carbonated drinks and warned on its counterproductive nature as well as the loss of revenue to government that would result thereby.

The MAN report titled “key considerations against excise on non-alcoholic beverages” projected that the government might collect N81 billion from this tax over the next three years up to 2025 but may end up losing a whopping N197 billion revenue from other taxes such as value added tax from manufacturers of soft drinks over the same period. This would be in addition to the loss of up to N1.9 trillion in sales revenue with consequent negative implications on jobs and supply chain businesses. Many economic experts appear to agree with the position of MAN. It seems that government is obsessed with the generation of more revenue in the short term that it has failed to evaluate the long term implications of its policy pronouncements. This situation brings to the fore the need to have a proper re-evaluation of the process of government policy formulation in the enhancement of economic development. One wonders whether proper stakeholders’ engagement was carried out before the policy was made public. Stakeholder engagement is a very critical aspect of policy formulation in other developed climes and a major stakeholder as the Manufacturers Association of Nigeria ought to have been consulted before such a policy that would affect their business is formulated. From the reactions of MAN, it is obvious that they were not. Consulting relevant stakeholders creates the background for the policy not to be reversed by a succeeding administration. It may not be too late for government to have a tete-a-tete with manufacturers to chart a better path ahead that would be beneficial to both government and the manufacturers alike.

The critical issue the Buhari administration has seemingly refused to address over the past few years is the need to cut down on the cost of governance. The Federal Government needs to critically look at the expenditure side of its operations, especially for the executive branch of government. This need is greater when it comes to cost of maintaining political office holders across the three tiers of government. What the Buhari administration has resorted to in the face of revenue challenges is more borrowing and more taxation without making sure that the median income for the average worker is enhanced. This current unquenchable thirst for more revenue by government, even at great cost to key sectors of the economy is definitely counterproductive. The searchlight for more revenue has now been beamed in the direction of the manufacturing sector which in itself, needs government support to grow. On the health issue, government enlightenment and awareness programmes may help in addressing the health issues. Government may also put pressure on the firms in the subsector to invest in research and development on developing new products that have less negative health hazards on the populace.

In the last GDP sectoral figures released by the National Bureau of Statistics, the quarterly growth rates for industry or manufacturing in particular, for most of 2021 lagged behind those of both agriculture and services. It actually shrank in growth rates over much of the year given its various challenges of poor operating environment, little access to foreign exchange for imported inputs, insecurity issue, inadequate power supply and a host of other factors. In as much as introducing the N10 per litre excise duty on all non-alcoholic, carbonated and sweetened beverages may have its merits as propounded by the authorities, namely access to more revenue and the potential health benefits for the populace, the long run implications on the growth of the industrial sector should also be considered. This is also in addition to the potential job losses and reduced turnover for these manufacturing outfits in the non-alcoholic drinks industry that may result.