The Journal Nigeria

Saturday, 2nd March 2024
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A new excise duty has been introduced by the Federal Government on all carbonated and sweetened beverages commercially available in Nigeria. The new development places a N10 tax on every litre of carbonated, sweetened, and non-alcoholic drinks sold in the country. Excise duty is a kind of tax levied on the manufacturing, licensing, and sale of commodities.

Zainab Ahmed, Nigeria’s Minister of Finance, Budget, and National Planning disclosed this as the 2022 budget was publicly presented in Abuja yesterday. According to her, the new tax is an attempt to discourage Nigerians from consuming sweetened beverages, due to their associated health risks.

“There’s now an excise duty of N10 per litre imposed on all non-alcoholic and sweetened beverages. And this is to discourage excessive consumption of sugar in beverages which contributes to a number of health conditions including diabetes and obesity. But it is also used to raise excise duties and revenues for health-related and other critical expenditures. This is in line also with the 2022 budget priorities.” she said

Ahmed went on to describe a novel move by the government to begin the taxation of digital services that are accessible to Nigerians through foreign companies. On a global scale, Nigerians are known to be versatile users of foreign digital products. Leading cryptocurrency Bitcoin; was reported to have been used for transactions in Nigeria than in any other African country. In the ranking, Nigeria came second only to the United States. The federal government has now identified the prospect of revenue generation through digital products and actions to enforce It are underway.

The minister said, “Section 30 of the Finance Act is designed to amend Section 10, 31 and 14 of VAT is in relations to VAT obligations for non-resident digital companies and the mechanism that will be used is to restrict VAT obligations mainly to digital non-resident companies who supply individuals in Nigeria who can’t themselves self-account for VAT.

“So, if you visit Amazon, we are expecting Amazon to add VAT charge to whatever transaction you are paying for. I am using Amazon as an example. We are going to be working with Amazon to be agreed to be registered as a tax agent for the FIRS.

“So, Amazon will now collect this payment and remit to FIRS and this is in line with global best practices, we have been missing out on this stream of revenue.

The minister clarified that the new law will only apply to foreign companies with products such as apps, cloud service, online advertising, trading services, etc. Strikingly, this definition covers products that have become household names, such as WhatsApp, Facebook, Instagram, Google, and other finance apps.

Nigerians have criticized the government’s move to impose these taxes, labelling them that as exploitative harmful to the economy. 

Additional Taxes harmful to Economy- MAN, Experts

The Manufacturers Association of Nigeria (MAN) and economic experts have warned that a new taxes imposed on carbonated drinks will be injurious to the economy. The organization detailed the consequences of reintroducing excise duty on carbonated drinks warning that in the end, the government would record more losses than gains if they tow this path.

The report, titled ‘Key considerations against Excise on non-alcoholic beverages’, projected that the government might collect N81bn revenue from excise duty on carbonated drinks between 2022 and 2025, but lose N197bn within the same period from other taxes, such as Value Added Tax and Company Income Tax from the manufacturers of soft drinks. The report also projected the beverage subsector to lose about to N1.9tn in sales revenue between 2022 -2025. The loss will be as a result of negative consumer behaviour towards the product. Industry-related jobs will also reduce and supply chain businesses will suffer likewise.

Segun Ajayi-Kadir, the Director-General of MAN, stressed that the government is making a rather ruinoumistake. He said, “I would like to say that the introduction of excise duty of N10/litre on non-alcoholic, carbonated and sweetened beverages, despite its potential overwhelming negative impact is rather unfortunate.”

He stressed that the excise duty tax would affect the sub-sector, which has contributed significantly to the economy and taxes, despite the debilitating effects of naira devaluation, the inadequacy of forex, and the COVID-19 pandemic.

“The revenue aspirations of the government in introducing this excise may not be justified in the long run. Let us look at it this way. The government is estimated to generate an excise tax of N81bn 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.”

Also, Mr. Taiwo Oyedele, the Fiscal Policy Partner and Africa Tax Leader at PwC, corroborated the disagreement with the new development, citing that manufacturing companies will suffer blunt consequences, which will spiral into a national saga.

He said, “I will be more concerned about sectors like manufacturing because their cost is rising and they are not able to increase their selling prices because the purchasing power is low.

“If you impose a tax, because they want to survive, they have to cut down on employment and find a way to survive. In terms of inflation, when you impose maybe an excise tax, if the sector is able to pass it on to customers, it would be higher selling prices, leading to inflation.

“But if the products are very elastic, and you are afraid of losing the market, then you bear the costs and your margins will be low. If your margin is low, it means what you pay in company income tax will be less, and your shareholders will get less in dividends, affecting their own purchasing power as well. So, taxes, sometimes, have unintended consequences, which policymakers must always consider.” he concluded