By Olakunle Olafioye
Federal Government’s decision to introduce additional taxes as part of its revenue drive has once again set the teeth of many Nigerians on edge.
Faced with dwindling revenue, the Federal Government in the last few years announced the introduction of new taxes including the newly introduced N10 on every litre of carbonated drinks in the country.
The Minister of Finance, Budget and National Planning, Zainab Ahmed, while presenting the detailed breakdown of the 2022 budget had said that the government, besides borrowing, was looking at introducing new taxes in order to shore up its revenue base to finance the budget.
The disclosure did not go down well with manufacturers and business owners who considered the proposal as an additional strain on their businesses, many of whom had earlier complained about excessive taxation on their businesses.
The government prior to the minister’s disclosure had mooted the idea of re-introducing the excise duty on carbonated drinks which was abolished in 2009 as part of measures to cushion the effect of economic hardship on Nigerians then.
Indeed, manufacturers who are already paying numerous taxes and levies, which they say put a lot of pressure on their businesses have justifiable reason to grumble over the introduction of the new tax.
Some of the taxes and levies that are already being paid include: corporate income tax of 30 per cent, education levies of two per cent, VAT 7.5 per cent, withholding tax, land rent, environmental tax and numerous unofficial taxes.
In addition to these, there are also multitude of fees and levies imposed by many other government agencies at the federal, state, and local government levels.
An economist and Chief Executive Officer, Centre for the Promotion of Private Enterprise, CPPE, Dr. Muda Yusuf, frowned at the introduction of addition tax on business at a time, he believes, most businesses are still smarting from the adverse effect of the COVID-19 pandemic.
He noted that the proposal negated the economic recovery and job creation aspirations of the Federal Government and added that many upcoming small businesses in the beverage sector would be hard hit by this proposal.
According to him, “the millions of micro enterprises in the soft drinks’ distribution chain will be adversely impacted by the imposition of the excise tax. This is detrimental to the job creation and poverty reduction commitment of President Muhammadu Buhari.
“Nigerian manufacturing companies, and indeed most investors, are going through tremendous stress at the moment. They are currently grappling with serious macro-economic challenges and structural constraints impacting on capacity utilization, productivity and competitiveness.
“This is affecting sales, turnover, profitability, shareholder value and the sustainability of investments. The norm globally at this time is to provide incentives for industries to aid their recovery from the shocks of the pandemic and escalating costs.
“We cannot afford to be doing the exact opposite. Manufacturers, across all product segments need a respite, especially in the light of the unprecedented escalation of production and operating costs.”
But while manufacturers have a justifiable reason to groan over the growing list of taxes payable in the country, some analysts say, the ordinary Nigerians who are the final consumers should be more disturbed by this development as producers would always pass the burden of the tax to the final users of their products.
An economic expert and Associate Professor in the Department of Private and Commercial Law, Babcock University, Ogun State, Dr Tayo Bello, noted that taxes naturally push prices of commodities up.
He, however, posited that the latest proposal might not have serious effect.
According to Bello, “taxes definitely make the prices of commodities to go up, but I don’t think this particular one will have a substantial impact on the consumers; it might not. But take it or leave, if those manufacturers are very smart despite the fact that they will be paying N10 they can just reduce the quality not the quantity of the product.
“In that case, it is the end users that will bear the cost. The state of our revenue now requires that Federal Government looks for a way out at all costs. The planned withdrawal of subsidy on electricity, withdrawal of subsidy on petroleum are just some of the ways the government considers as means of getting the country out of the difficult financial situation we find ourselves. The government cannot continue to borrow.”
The CPPE boss, however, insisted that imposition of any tax at a time like this will further worsen the challenges facing manufacturers whom, he noted, are battling hard to keep their business afloat.
He noted that the producers had reached a point where the spike in the cost of production could not be passed to the final consumers.
His words: “Manufacturers are suffering from intense pressure on cost of production arising from numerous structural bottlenecks. This situation is creating sustainability challenges for investors in the sector, especially those in the SME segment. They have experienced significant spikes in the cost of raw materials, cost of fund, high import duty, elevated energy cost, prohibitive cost of transportation and high cost of logistics. A huge proportion of these costs cannot be passed on to the consumers because of high consumer resistance.
“The economy is currently characterised by weak purchasing power which is taking a huge toll on sales and turnover of many manufacturers, leading to high inventory of manufactured goods.
“Many manufacturers are currently struggling with unfair competition, especially from products imported from Asia which have flooded the Nigerian market, largely because of the porosity of the borders. These imports are often much cheaper than goods produced locally.”
The Director General of the Lagos State Chamber of Commerce and Industry, Dr Chinyere Almona, said that the immediate concern of LCCI is the impact of the tax on the prices and demand.
This, she opined, might result to job losses as a result of decline in production activities.
According to Dr Almona, “the immediate concerns are the likely increase in prices which may lead to a decrease in demand and consequently, loss of jobs due to a reduction in production activities.
“The prohibition on imported drinks should be better enforced to protect domestic production from unfair competition in the face of the high cost of production in Nigeria,” she suggested.
She expressed LCCI’s supports for government’s revenue drive and the pro-health considerations of several stakeholders, but recommended that revenue realised from the tax be judiciously used.
Her words: “We, however, recommend that the realized revenue from these levies be channeled into improving the country’s grossly inadequate health infrastructure. The allocation to the health sector in the 2022 Federal Budget of N463billion should be reviewed upward to the region of a trillion naira invested into the sector in the next 10 years.
“The Chamber is also concerned about the government’s stance on the enforcement of revenue targets on government-owned enterprises. The operations of these Government-Owned Enterprises (GOEs) should not build up into a hostile business environment where the private sector will find it challenging to thrive. And beyond the levying of taxes on carbonated drinks to force a reduction in consumption, we urge the various public health agencies to regulate the production of sugary drinks to reduce their negative effect on human health.”
Dr Almona’s recommendation agrees partially with Dr Bello’s suggestion on the need to deploy the realisable revenue from taxes into projects that will help to ease the pains of the masses who are currently groaning over what they describe as government’s harsh policies on the masses.
Bello said that the government owes the masses the responsibility of easing their pains in the face of the current hardship in the country.
He called on the government to put measures in place in order to ameliorate the suffering of the people.
“The government should cushion the effect of the hardship Nigerians are going through by declaring or by providing free medical services throughout the federation. This will help unlike the proposal to share N5,000 that will go into wrong pockets. It means if any person is sick he or she can still go to any available hospitals or clinics and get treated free.
“Secondly, let them allow free education up to secondary school and subsidize or give scholarships or bursaries in tertiary institutions. In addition to that let them continue with massive construction of roads because when you have good infrastructure such as road facilities, transport fare is bound to come down,“ Dr Bello said.