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Controversy rages over 20% fresh tax on soft drinks

There is no end in sight to the controversy over the imposition of 20 per cent ad valorem tax on soft drinks manufacturers as the…

There is no end in sight to the controversy over the imposition of 20 per cent ad valorem tax on soft drinks manufacturers as the carbonated soft drinks sectoral group of the Manufacturers Association of Nigeria (MAN) insists the fresh tax coming after a N10 per litre proposal is anti-business.  Daily Trust on Sunday reports that the controversy is raging and taking a new dimension.

The federal government had in the Finance Act 2021 introduced the excise duty which was tagged, “Sugar Tax”.

The Minister of Finance, Budget and National Planning, Zaynab Ahmed, had explained that the excise duty on soft drinks would discourage excessive consumption of sugar beverages which contributed to diabetes, obesity, among others.

She stated that, “There’s now an excise duty of N10 per litre imposed on all non-alcoholic and sweetened beverages. This is to discourage excessive consumption of sugar in beverages which contributes to a number of health conditions, including diabetes and obesity.”

Daily Trust on Sunday reports that the sectoral group of MAN had raised alarm over the fresh tax burden of another 20 per cent ad valorem tax. Rising from its meeting in Lagos recently, the group rejected the proposed tax, warning that such a move would spell doom for the sector as the effects of the prevailing N10 per litre tax regime were already crippling the sector.

They pointed out that a study revealed that the N10 per litre excise tax which took effect between June and August, 2022, showed an -8 per cent revenue decline as a direct result of excise tax implementation.

It is projected that the decline will hit -25 per cent by December, 2022, if not reviewed.

This excludes the cost of write offs of products produced, excised but not sold. With the proposed 20 per cent ad valorem tax introduction, the collapse of the soft drinks market is imminent.

“Most certainly, the additional 20 per cent will not only kill the sector but result in the loss of revenue by the federal government and a consequential phenomenal loss of jobs by various layers of the Nigerian workforce,” the group, which accounts for 33 per cent of the entire manufacturing sector in Nigeria, said after the meeting.

They also decried the devastating effects of the N10 per litre tax which they said had “become burdensome with the high cost of operation in the country and its constituent elements.”

They, therefore, called for the suspension of the excise tax being proposed by the federal government to forestall the collapse of the industry.

Corporate Affairs and Sustainability Director of the Nigerian Bottling Company (NBC), Ekuma Eze, pointed out that the N10 per litre currently in practice had no bearing on profitability for any of the members of the sectoral group.

He stated that since the introduction of the N10 per litre excise tax businesses in the sector had been experiencing a worrisome decline, with the average loss in volume revenue -10 per cent between June and September, 2022, and that it was estimated that the decline would further worsen to -25 per cent by December, 2022.

The group equally rejected the move to bring up the sugar angle as a justification to impose the additional 20 per cent ad valorem excise tax on the Carbonated Soft Drinks (CSD) segment.

This followed a protest by a coalition, the National Action on Sugar Reduction, urging the government to increase taxes on sugary drinks and invest the revenue in public health.

The coalition said, “Soft drinks taxes are a ‘win’ for Nigerians. Consumption of sugary drinks is known to be a risk factor for diseases like type 2 diabetes, heart diseases, stroke and cancer.”

But the sectoral group decried the “ongoing emotional campaign to string up the sugar angle.”

It said the campaign was “in reaction to the multidimensional pressure that has been unleashed on the government by the vehement opposition in response to the proposed regulation by the sectoral group and concerned stakeholders over the last couple of weeks.”

The group stated that the ongoing campaign to link sugar and use it as a poster boy or silver bullet to solve Nigeria’s healthcare problems was at best misleading.

The group said, “Citizens’ health is a significant responsibility of all governments, and any action to protect citizens’ health is desirable and should be supported. But the false attribution of sugar-related ailments to a single cause or product is wrong.’’

The group further stated that the lobby group that had encouraged the federal government to impose higher taxes on Sugar-Sweetened Beverages (SSB) had used data that did not support their argument for the increases in taxes on sweetened beverages.

It said, “Firstly, the group agrees that 70 per cent of citizens’ medical bills in the country are private expenses and do not involve the government.

“The call for the government to raise taxes to cover these private expenses is perplexing and inconsistent with best global tax practices that place the burden or incidence of tax on a product to cover the cost to the government of treatment of patients that consume the product.’’

Corroborating the position, Mr Teslim Shitta-Bay, a foremost economic analyst, argued that the advocates of the so-called sugar tax had argued that in 2007 Nigerians consumed 9ml per person, and in 2021 or 14 years after, they consumed 14ml per person; representing a Compound Annual Growth Rate (CAGR) of 3.46 per cent, which was only slightly higher than the national population growth rate over the period.

Nigerians, he noted, consumed 8kg of sugar per person per annum, which was below the prescribed World Health Organisation’s (WHO’s) 9.1kg per person and was significantly lower than the United Kingdom’s (UK’s) 30kg or the United States’ (US’) 46kg per person.

Shitta-Bay also raised greater health concerns in the aftermath of the sugar tax.

He said, “Yes, health issues can be connected to economic development, but in this case, there is no justification to use health to rationalise simply because the carbonated soft drinks sector has not violated the regulations.”

Other experts say while the government has a responsibility to explore new revenue opportunities, taxing struggling businesses may trigger even more economic woes for the nation, with even a far-reaching effect on Foreign Direct Investment (FDI).

A former Director General of the Lagos Chamber of Commerce and Industry (LCCI), Dr Muda Yusuf, said the proposed tax “will hurt the carbonated drinks and non-alcoholic beverage segments of the manufacturing sector.”

Yusuf, who is the CEO of the Centre for the Promotion of Private Enterprise (CPPE), said, “The decision seems to suggest that the policy makers are largely disconnected from the realities of manufacturing challenges in Nigeria.  This class of investors has enough challenges already.

“They are grappling with high and escalating production costs, rising operating costs,  depreciating exchange rate,  illiquidity in the forex market,  soaring cost of logistics,  multiple taxation  and surging energy cost.

“It is unfair to contemplate an additional tax on this struggling sector.

“There are implications as well for the ability to retain existing jobs let alone creating new ones. In essence, this tax proposition is a negation of the quest for job creation and poverty reduction.

“Besides, the food, beverage and tobacco sectors have excellent records of backward integration with inherent multiplier effects on jobs and incomes.

“CPPE strongly advises against the contemplation of an additional tax on this critical sector of our economy.”