NIGERIA – Stakeholders in the carbonated soft drinks sub-sector of the Manufacturers Association of Nigeria (MAN) have yet again raised alarm about the proposed 20 percent Ad-valorem Excise Tax on non-alcoholic beverages, saying it will only succeed in collapsing the widely consumed Carbonated Soft Drinks [CSD] segment of the economy.
The 20 percent Ad-valorem Excise Tax will follow the N10 per liter Ad-Valorem excise tax, which took effect between June and August 2022 and showed a–8% revenue decline as a direct result of excise tax implementation. It is projected that the decline will hit -25% by December 2022 if not reviewed.
Already manufacturers are finding it hard to cope with implemented excise tax, underscoring that it has “become burdensome with the high cost of operation in the country and its constituent elements.”
The Corporate Affairs and Sustainability Director, Nigerian Bottling Company (NBC), Ekuma Eze, said since the introduction of the N10 per liter excise tax, businesses in the sector have been experiencing a worrisome decline.
Although the directive will generate further revenue for the government, market observers fear this might trigger the collapse or near collapse of the soft drinks manufacturing sub-sector of the industrial sector.
Moreover, Nigerian consumers will seek alternatives if the prices of soft drinks are increased as a result of this, translating to low business volume for manufacturing operators.
The Founder and Chairman of Proshare Limited, Mr. Olufemi Awoyemi, has lamented over the proposed plan, that introducing the new tax on a sector that is struggling to stay afloat will only spell doom for the CSD sector, while also creating job losses in the manufacturing sector.
He noted: “An Ad valorem tax is normally a tax where you discover your economic recovery curve and you are growing well to extract from the increase in value, not from a decline in value. In a country where inflation continues to grow so high, where the interest rate continues to grow so high, when the consumer’s purchasing power is declining, you then increase the cost of what is most affordable to them.”
“It will turn out negative; so, my own is not to defend so much of the industry, but to defend Nigeria because, at the end of the day, that profit Nigeria is looking for in that proposed tax will only be a mirage.”
Seconding Mr. Awoyemi’s words, the Chief Economist, Proshare Limited, Teslim Shitta-Bey said the industry suffers a challenge of infrastructure and energy, which he said, is very critical for the prospects of growth in consumer demand. He added that the problem is not tax, but the tax base.
He argued that one of the largest bottling companies in the country suspended its investment of over £300 million in the first quarter of 2023 for the expansion of their domestic operations in the country due to the proposed plan to introduce the ad-valorem tax.
Shitta-Bey urged all stakeholders involved in the proposal of the new tax act to look at alternative methods by which governments at sub-national and national levels can generate income.
He also said the federal government should look at the issue of financialisation beyond income statements, which will enable it to use its balance sheet as an alternative form of raising finance for the economy.
Other economists have argued that the implementation of the proposed tax increase will not only hurt manufacturing but will also hurt the government and citizens of the country.