The introduction of excise duty of N10/liter on non-alcoholic, carbonated and sweetened beverages by the Federal Government will likely cause a 0.43 per cent contraction in output and about 40 per cent drop in total industry revenues in the next five years.
The Manufacturers Association of Nigeria (MAN), which made this know while reacting to last week’s introduction of excise duty of N10/liter on non-alcoholic, carbonated and sweetened beverages, said the revenue aspirations of government in introducing the policy may not be justified in the long run.
MAN Director-General Mr. Segun Ajayi-Kadir said, for instance, that while government is estimated to generate an excise tax of N81 billion between 2022-2025 from the Group, this will 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 revenues is estimated to be up to N142 billion contraction in Value Added Tax (VAT) raised by the sector and N54 billion CIT reduction between 2022 to 2025. This is not to mention the potential negative impact on manufactures/supply chain,” he said.
Ajayi-Kadir added that what is not realised by many is that excise duty begets high production costs which in turn adversely affect production levels and intimately, result in dwindling profits. “This will grossly impact the small and emerging business owners in the non-alcoholic beverage sector,” he stated.
According to the MAN DG, Nigeria is the sixth highest consumer of soft drinks, but per capita consumption is low. “Introducing excise will easily reduce production capacity causing manufacturers to struggle to meet investor commitments as well as cause investors to take investments to other countries,” he said.
Ajayi-Kadir also drew attention to the fact that 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.
“One is particularly worried about the ripple effect of the introduction of the excise, despite strenuous evidence-based advice to the contrary. This will have unpleasant impact on employment, households and consumers,” he kicked.
He further pointed out that as seen from previous impact analysis, excise affects production outputs, revenue and profits, and this causes companies to pursue cost cutting measures to reduce the effect of diminishing revenue and profits by reducing employee salaries or retrenchment.