By Steve Agbota, [email protected]
At a recent interaction with the National Assembly on the 2022–2024 Medium Term Expenditure Framework (MTEF), the Nigeria Customs Service (NCS) proposed the re-introduction of excise duty on the production of soft drinks in the country.
Excise duty is a charge on the production; sale or use of certain locally produced goods. The principal act for excise duties in Nigeria is the Customs and Excise Management Act (CEMA). Comptroller General of the NCS, Hameed Ali, had asked the Federal Government to lift tax waivers for companies producing soft drinks within the country.
Following the plea by Ali at the MTEF last month, that all beverages companies should be made to pay levies, the House of Representatives Committee on Finance has resolved that it would amend the Finance Act to include levies on all carbonated and non-carbonated drinks.
However, experts were of the opinion that if the plans scale through, consumers of non-alcoholic drinks would be made to pay more and it would be out of reach for the masses.
Re-echoing the plans, at the recent visit to some commands in the western zone, the Assistant Comptroller General (ACG) of Customs Zone ‘A’ Mrs. Modupe Aremu said Customs would soon start collection of excise duty on carbonated drinks, water, plastics and tiles among others.
The ACG’s statements have been stoking fire among the Organised Private Sector (OPS), as they described the plans to re-introduce excise duty on products such as tiles, carbonated drinks, water, plastics among others as ill timed.
While reacting to the development, the Vice President, Manufacturers Association of Nigeria (MAN), Mr. John Aluya, described the proposed collection as ill timed, adding that NCS lacks the provisional power to collect excise duty without getting approval from the legislature.
According to him, the collection of excise duty on the products would increase the cost of production, while stating that final consumers will be made to bear additional burden as a result of the re-introduction of excise duty.
Economist and private sector advocate, Dr. Muda Yusuf, who was also the immediate past Director General of Lagos Chamber of Commerce and Industry (LCCI), labeled the proposal as ill-timed, insensitive and most inappropriate, given the prevailing harsh economic and business conditions.
He added that the citizens and the business community are experiencing galloping and volatile inflationary conditions which is unprecedented.
He explained that the proposal is also a negation of the economic recovery and job creation aspirations of the Federal Government, adding that many upcoming small businesses in the beverage sector would be hard hit.
He further said millions of micro enterprises in the soft drinks’ distribution chain would be adversely impacted by the imposition of the excise tax. This, he said, would be detrimental to the job creation and poverty reduction commitment of President Muhammadu Buhari.
He stated that Nigerian manufacturing companies, and indeed most investors, are going through tremendous stress at the moment, adding that currently manufacturers are grappling with serious macro-economic challenges and structural constraints impacting on capacity utilisation, productivity and competitiveness.
“This is affecting sales, turnover, profitability, shareholder value and the sustainability of investments. The norm globally at this time is to provide incentives for industries to aid their recovery from the shocks of the pandemic and escalating costs.
“We cannot afford to be doing the exact opposite. Manufacturers, across all product segments need a respite, especially in the light of the unprecedented escalation of production and operating costs,” he explained.
He said the economy is still at a recovery phase, many manufacturing companies are yet to recover from the shocks and dislocations inflicted by the pandemic and the recession that followed.
“Manufacturing contribution to GDP is still less than 10 per cent. The growth recorded in the sector in the second quarter of 2021 was a mere three per cent . Given the strategic importance of manufacturing to an economy, what the sector needs at this time is more stimulus to ensure better contribution to the GDP.
“Manufacturers are currently contending with a serious crisis resulting from liquidity in the foreign exchange market and sharp depreciation in the exchange rate which is impacting adversely on the cost of production. Many manufacturers are not able to import vital raw materials, a situation severely inhibiting their production and productivity,” he added.
He said manufacturers are suffering from intense pressure on cost of production arising from numerous structural bottlenecks. He said the situation is creating sustainability challenges for investors in the sector, especially those in the SME segment.
According to him, they have experienced significant spikes in the cost of raw materials, cost of funds, high import duty, elevated energy cost, prohibitive cost of transportation and high cost of logistics. A huge proportion of these costs cannot be passed on to the consumers because of high consumer resistance.
“The economy is currently characterised by weak purchasing power, which is taking a huge toll on sales and turnover of many manufacturers, leading to high inventory of manufactured goods.
“Many manufacturers are currently struggling with unfair competition, especially from products imported from Asia which has flooded the Nigerian market, largely because of the porosity of the borders. These imports are often much cheaper than goods produced locally.
“Energy cost is currently at an all time high, the cost of diesel is already at the threshold of N300 per litre as against N200 per litre a year ago. The cost of gas is on the increase, availability of gas is an issue. Industrialists are also experiencing sharp increases in electricity tariffs provided by the Electricity Distribution Companies, the Discos.”
He explained that manufacturers are already paying numerous taxes which put a lot of pressure on them
“Manufacturers including soft drinks producers are already paying numerous taxes and levies which put a lot of pressure on them. Some of the taxes and levies that are already being paid include: corporate income tax of 30 per cent, education levies of 2 per, VAT 7.5 per cent, withholding tax, land rent, environmental tax and numerous unofficial taxes.”
“There are also multitude of fees and levies imposed by many other government agencies at the federal, state, and local government levels. The appeal is that the Nigeria Customs Service and the National Assembly should have a rethink on this matter,” he said.