Charles Nwaoguji; +234 8032715118 [email protected]
Nigeria is the highest consumer of alcohol in Africa and one of the world’s top 10 markets for alcoholic beverages. In the late 2000s, global beer brand, Guinness, unveiled Nigeria as its largest consumer, overtaking even its home market, Ireland. According to the World Health Organisation estimates, an average Nigerian consumes about 1,228 litres of alcohol per annum.
But in line with the Federal Government’s plan to increase its Tax to GDP records, the Finance Minister, Kemi Adeosun, recently announced the introduction of taxes on cigarettes and alcoholic drinks produced in the country for the next three years beginning from June.
She said: “The Tariff Technical Committee (TTC) 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.
“Furthermore, peer country comparisons also carried out showed Nigeria as being behind the curve in the review of excise duty rates on alcoholic beverages and tobacco.” The excise duty attracts N1 per cigarette (N20 per pack) in 2018, N2 per cigarette (N40 per pack) in 2019, N2.90 per cigarette (N58 per pack) the following year. According to the report, Nigeria, the regional manufacturing giant, produces an estimated 21 billion sticks annually and exports 9 billion of them to neighbouring Ivory Coast, Benin Republic and Burkina Faso. The country stands to earn N126 billion ($330 million) over the phase.
Beer, wines and spirits also attract N.30, N1.25 and N1.75, respectively per centilitre (Cl) in 2018. With an estimated (locally produced) beer and spirit consumption of 12.28 and 12 litres per annum, respectively, the government stands to pocket over N360 billion ($1 billion), over the duration.
Heineken NV (largely through Nigerian Breweries), Diageo (through Guinness Nigeria), and latest entrant AB Inbev with its Hero and Trophy brands, are the dominant players in the Nigerian alcohol market. British American Tobacco (BAT) is the market leader for tobacco in Nigeria and controls about 78 per cent of the market share.
Revenue generation
In a bid to curtail globalisation of the tobacco epidemic and its health as well as economic consequences, the WHO initiated the Framework Convention on Tobacco Control (FCTC). Though Nigeria signed the FCTC in 2004 and later ratified in 2005, five years later, it is yet to implement a comprehensive tobacco control policy. As such, it is essential to explore tobacco industry activity in Nigeria towards a better perspective for implementing effective tobacco control. Government in its wisdom decided to introduce the increase in taxation. For the government, they see it as a means to increase fiscal revenue. More to that is to save lives of Nigerians by discouraging them from taking to alcoholic drinking and smoking. It is believed that the low tax level prevails even though Nigeria is the highest alcohol drinking country in Africa and leads the top 10 largest beer drinking countries.
Benefits
The upward review of the excise duty rates for alcoholic beverages and tobacco was to achieve a dual benefit of raising the Government’s fiscal revenues and reducing the health hazards associated with tobacco-related diseases and alcohol abuse.
“The Tariff Technical Committee (TCC) 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. 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. Following the President’s approval, the minister explained that 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 Alcoholic beverages, the current ad-valorem rate will be replaced with specific rates and spread over three years to moderate the impact on prices. This will curb the discretion in the Unit Cost Analysis (UCA) for determining the ad-valorem rate and prevent revenue leakages.
The government will maintain the current ad-valorem rate of 20 per cent on tobacco and introduce additional specific rates with the implementation to be spread over a three-year period to also reasonably reduce the impact on prices.
Under the new rates for tobacco, each stick of cigarette will attract one naira specific rate per stick; that is N20 per pack of 20 sticks in 2018. In 2019, tobacco will attract two naira tax per stick or N40 per pack of 20 sticks. By 2020, tobacco tax will even go higher, as it wlll attract N2.90 kobo per stick or N58 per pack of 20 sticks.
Job losses
With the new tax policy, stakeholders have argued that the industry’s investment of over N420 billion was being threatened by the recent upward review We strongly hold the view that if the intention of government is to grow local industries , imposing exorbitant duties on locally manufactured goods is a contradiction of that objective.
There is growing anxiety that the job of over 25, 000 Nigerians plus over 250,000 connected SMEs are being threatened by this hike. It is obvious that job losses will result from low demand of the products. The new hike in duty would lead to the collapse of the indigenous wines and spirits segment and pave way for the complete take-over of the Nigerian wines and spirits market by the imported and smuggled brands. According to the Chairman of Distillers and Blenders Association of Nigeria (DIBAN ), Patrick Anegbe, the new duty being approved for implementation by Federal Government translates to an increase in duty from the current average of N30 per litre to N150 per litre in the first year and N200 per litre subsequently.