By Merit Ibe
As the proposed 20 percent excise tax on non-alcoholic beverages continues to elicit reactions, economists have argued that its implementation will not only have a negative impact on manufacturing but will also hurt the government and citizens of the country.
Some economists who spoke to Daily Sun are of the view that if government wants to increase taxes, it should facilitate the business environment, remove impediments militating against people in business and make more money, bearing in mind that the biggest gap the country as of today is coming from tax evasion and non-compliance.
Olufemi Awoyemi, Founder and Chairman of Proshare Limited – Nigeria’s foremost Financial Information Hub, on TVC Business News programme lamented that the manufacturing industry that is just recovering from the coronavirus (COVID-19) pandemic, and foreign exchange challenges, high cost of raw materials, high cost of technology adoption, would now be contending with the harsh reality of additional tax on productivity. He added that a look at the sector shows that there have been problems over the years and the government has reacted to these issues in various ways, through taxation.
He said while it is good for the government to generate revenue through its tax policy, there was need for a balance to create an environment for the manufacturing companies to thrive.
Awoyemi affirmed that the government supported by the International Monetary Fund (IMF) and the World Bank has been looking at ways of addressing the problem of revenue deficit and that certain areas of the economy have to be improved upon through taxation.
He said the call for critical review, taking into consideration the country’s fiscal policy, management issues and challenges concerning the various sectors of the economy, like the manufacturing industry. “That means if you look at one side and leave the other without an equilibrium, there will be a conundrum, and that means you will be defeated.”
Supporting government on excise tax, Awoyemi said there was a single factor narrative that makes no sense, which is ad-valorem tax.
He said the N10 per litre excise tax on non-alcoholic beverages which has been paid by soft drink companies is a tax on production and consumption and that its adverse effect on the manufacturers trickles down to the consumers who find it difficult to cope with the price of the products. “If the revenue of the manufacturing companies declines, with the -25 percent being experienced, there would be a layoff of workers and it would lead to a drop in their standard of living,” Awoyemi averred.
On his part, Teslim Shitta-Bay, Chief Economist /Managing Editor of Proshare Nigeria on Today’s Business programme on Silverbird Television, stated that “a tax is designed to create an environment for expansion, consumption and productivity, so you need a tax that is not primitive”.
He said “the scale of the tax in the carbonated soft drink sector is too high., that the proposed 20 ad-valorem tax on the value of the product plus a recent N10 per litre excise tax will create difficulties for manufacturers in the sector.
Teslim added that sugar consumption in Nigeria is one of the lowest consumers on the planet, with 8 kilogrammes per person, while the United Kingdom records 36 kilogrammes per person and the United States of America 40 kilogrammes per person.
A renowned fiscal policy analyst, Taiwo Oyedelethe Fiscal Policy Partner and Africa Tax Leader at PwC, PricewaterhouseCoopers, a reputable accounting firm, who spoke on Arise TV Programme ‘Xchange’ , noted that government needs money because it does not have enough to fund critical infrastructure, overheads and the rest of them and the best thing to do is to strike a balance.
“That delicate balance, as to what do you tax, what rate of tax would be appropriate and when should you impose that tax?”
He noted that other ECOWAS countries have their own responsibilities and local policies to fit in their environment and some have reduced their excise tax more than 15 percent, saying there are cases where manufacturing companies within the sub-region enjoy suitable policies for growth.
He said tax is a consequence of economic activities, to stimulate economic activities and so government should look at the products, like soft drinks, how critical it is to Nigerians at the bottom of the pyramid.
“Those at the poor level use these soft drinks as a source of food for themselves, like getting a bottle of soft drink and bread and he or she feeds himself/herself for the moment.
“And one important thing is that these soft drinks companies contribute hugely to Company Income Tax, and the tobacco sector pays four times more than what other sectors pay in Nigeria, likewise other sub-sectors. They already have this burden and government wants to increase their taxes.
He said if government wants to increase their taxes it should facilitate the business environment, remove the impediments so that people can do business and make more money.
On excise tax soaring to 10 percent, he noted that it would be a wrong move because inflation is getting out of hand and that means more people are getting into poverty. “If you temper with VAT, it will have a direct impact on inflation, and it will be counter- productive, from the monetary side trying to control inflation and from the fiscal side, trying to increase inflation, it will be contradictory.
He said the GDP growth for manufacturing industries went down by 50 percent in the second quarter compared to the previous year. This is the sector that needs support, we need to allow them grow, allow them breath, when they do, they employ more people and that is the job creation we talk about.
“If you look at the increase in excise tax in June this year, the VAT went down and government revenue went down as well.”