As the Federal Government looks forward to bolster its resources with more revenues from its June 4 raise of excise duty on alcoholic beverages and tobacco, stakeholders including the organised Labour have warned the policy may be detrimental to the economy at the end of the day. They are concerned that an expected 20,000 jobs may be on the line when the policy is fully implemented.
The Finance Minister, Kemi Adeosun, while announcing the new tariff hike last month said the new excise duty rates were spread over a three-year period from 2018 to 2020, to moderate the impact on prices of the products.
Though she explained that the new excise duty regimes followed all-inclusive stakeholder engagements by the Tariff Technical Committee of the Federal Ministry of Finance with key industry stakeholders, the furore and reactions that it had generated so far have proven this to be untrue.
Federal Government view
From the Federal Government’s point of view, the upward review of the excise duty rates for alcoholic beverages and tobacco would achieve the dual benefit of raising its fiscal revenues and reducing the health hazards associated with tobacco-related diseases and alcohol abuse.
According to the Minister, the Tariff Technical Committee (TCC) has recommended the slight adjustment in the excise duty charges after cautious considerations of the Government’s Fiscal Policy Measures for 2018 and the reports of the World Bank and the International Monetary Fund Technical Assistance Mission on Nigeria’s Fiscal Policy.
She said, “The effect of the excise duty rates adjustment on trade and investment was also assessed by the Federal Ministry of Trade and Investment and it adopted the recommendations of the TTC.
“Furthermore, peer country comparisons were also carried out showing Nigeria as being behind the curve in the review of excise duty rates on alcoholic beverages and tobacco.”
Adeosun said the new excise duty rate on tobacco was now a combination of the existing ad-valorem base rate and specific rate while the ad-valorem rate was replaced with a specific rate for alcoholic beverages.
“For Tobacco, the government will maintain the current ad-valorem rate of 20 per cent and introduce additional specific rates with the implementation to be spread over a three-year period to also reasonably reduce the impact on prices.”
She explained that the new excise duty regimes were in line with the Economic Community of West African States (ECOWAS) directive on the harmonisation of member-states’ legislations on excise duties.
But some stakeholders who spoke to Daily Sun contended that the increase may be confirming fears that government was increasing the tariff to please the international community as the Minister indicated in her report on reasons for the raise.
For instance, the International Monetary Fund (IMF) in its report recommended a 100 per cent increase in excise duty rates imposed on all alcoholic beverages and cigarettes in Nigeria to conform with global norm
However, the recommendation, contained in IMF 2018 Mission Report on Nigeria, was higher than the rates approved by President Muhammadu Buhari.
It has noted that the excise duties rates for alcoholic beverages and cigarettes were very low and should be reviewed as “a full-proof revenue raising strategy.”
The new excise duty rates approved by President Buhari for tobacco were in addition to the existing 20 percent ad-valorem rates.
Under the new rates, each stick of cigarette would attract N1 specific rate (or N20 per pack of 20 sticks) in 2018; N2 specific rate per stick (or N40 per pack of 20 sticks) in 2019, and N2.90k specific rate per stick (or N58 per pack of 20 sticks) in 2020.
The minister said Nigeria’s cumulative specific excise duty rate for tobacco stood at 23.2 per cent of the price of the most sold brand, as against 38.14 per cent in Algeria, 36.52 per cent in South Africa and 30 per cent in The Gambia.
In Ghana, beer and other alcoholic beverages attract excise duty rates of 47.5 per cent, while local spirits, including “Akpeteshe” attract 25 per cent duty. The duty for tobacco products is 150 per cent for cigarette and cigar, $12 per kilogramme for Negrohead and 170.65 per cent for snuff and other tobacco products.
Another government agency, the Consumer Protection Council (CPC), in support of the Federal Government equally believed that the recent increase in excise duty on alcoholic beverages and tobacco products will serve to reduce the risks of abuse and disease.
The Director-General Babatunde Irukera, said government’s approach will also foster consumer confidence, provide regulatory clarity and prioritise safety, all of which reinforces the mandate of the Council.
Since last month when President Muhammadu Buhari approved the amendment to the excise duty rates for alcoholic beverages and tobacco, Organised Labour and the Nigerian private sector have vehemently opposed the increase.
The Organised Labour warned that over 20,000 jobs may be lost due to the increase in the excise duty on alcoholic beverages and tobacco.
National President of the National Union of Food Beverage and Tobacco Employees (NUFBTE), Lateef Oyelekan, said employers in the industry have notified the union that they may have to downsize as the new tariff would impact on the cost of production.
Oyelekan, who is also the Vice President of the Nigeria Labour Congress (NLC), said with the new tariff, consumers would have to pay more for cigarettes and alcoholic beverages, which cuts across beer and stout, wines and spirits.
He noted that the union has subsequently written the Minister of Labour and Employment, Senator Chris Ngige, on the implication of the new tariff, which may further exacerbate the problem of unemployment in the country.
“This new policy of the government will increase the cost of production and if that happens employers would have to look for a way of cutting cost, and workers are always the first option”, he said.
Oyelekan said more than 20, 000 workers are presently employed in the Alcoholic sector and half of this may lose their jobs, the same for the tobacco sector.
The NUFBTE President said the new tariff would not make Nigerian companies competitive with their colleagues outside the country and would further encourage importation instead of local production. This will escalate the problem of smuggling of alcohol and cigarette products, he argued.
He said, “The British American Tobacco (BAT) has just decided to make Nigeria its African headquarters where all its products for other African countries would be produced, but this may make the company to relocate to other African country with much more favourable policy.
“We can recall that Dunlop, Mitchellin relocated to Ghana due to unfavourable policy and now produce there and still bring the products to Nigeria because this is where the market is. That means Nigeria is providing employment for foreigners while our people walk the streets daily looking for jobs. It is sad!”
Oyelekan said what the union expected from the government was to look for a way to create jobs for Nigerians and maintain the existing jobs with the high insecurity in the land.
He also stated that the drive towards foreign direct investment would be impacted negatively as no investor would like to invest in an economy with low return on investment.
“Our employers have already notified us that it would lead to shut down of some of their companies. What government should be doing is to come up with policy that will discourage employers from downsizing, but before they can do that tariff has to be reasonable”, he said.
The Nigeria Breweries (NB) Plc, at its Pre- Annual General Meeting event last week corroborated the fact that consumers may have to pay more for the consumption of the alcoholic drinks from June this year if Federal Government insists on going ahead with the increase in tariffs.
According to the Managing Director of the NB, Jordi Borrut Bel, the new tariff would be adding a bigger challenge to the sector that is barely striving to survive amidst the present economic challenges in the country.
“We would have to pass it on to the consumer, though we would do it in the most responsible way that we can manage”, he said.
He stated that the company supported the Federal Government call for specific transparency, but equally advised it not to do what will go against its policy on job creation.
The Organised Private Sector (OPS) is however calling for the total reversal of the new tariff, which it maintained may lead not only to loss of jobs, but total extinction of the companies in the sector.
The President of the Manufacturers Association of Nigeria (MAN), Frank Jacobs said none of the companies targeted by the policy will remain in existence by 2020.
He said, MAN was still engaging government on this policy. We know in 3 years when it would be in full force, the companies definitely must close shop because there is no way any of them will survive.
“It will affect workers too, hence we are on the same page, if the company is closed, there would be no jobs.”
The Director General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, also shared the view that imposition of Excise duty on manufacturing firms at a time like this would do more harm than good to the economy.
According to him, one of the most vulnerable sectors of the Nigerian economy is the manufacturing sector. He said, “Already, the sector is grappling with high operating cost, high energy cost, weak purchasing power of consumers, an unfriendly tax environment, influx of smuggled products and high cost of logistics.”
The LCCI director general equally said that imposing additional excise duty would conflict with the vision of the ERGP regarding economic diversification, job creation and local value addition.
“If the government cannot give tax incentives to manufacturing firms, it should not impose additional tax burden on them, given the challenging operating environment for production in the economy”, he stated.
For its part, the Nigeria Employers Consultative Association (NECA), said the increase at this period when the economy is just coming out of recession with the low purchasing power of the citizens was indeed a bad time to make any additional demand on the people.
The Director General of NECA, Segun Oshinowo, said the disposable income of an average Nigerian has drastically decreased relative to what it could purchase two to three years ago.