The Organised Private Sector (OPS) has raised the alarm over government’s unfriendly policies and warned that they could push manufacturing companies out of existence. It has also called for a better business environment as well as the removal of multiple taxes and levies. The OPS concern is predicated on the reported fresh plans by the Federal Government to increase excise duty on alcoholic and non-alcoholic drinks and tobacco.
Excise duty, according to experts, is a form of taxation on manufactured goods within the country. It is also one of the many fiscal policy measures used to meet government’s drive for more revenue. Earlier, the Minister of Finance, Budget and National Planning, Zainab Ahmed, had hinted of plans to introduce new taxes and levies on essential foods and beverages. Reports affirm that there are about 17 bills to that effect now before the National Assembly.
Consequently, the Manufacturers Association of Nigeria (MAN), Nigeria Chamber of Commerce Industry Mines and Agriculture (NACCIMA), Nigeria Employers Consultative Association (NECA), and Nigeria Association of Small-scale and Medium Enterprises (NASME) have kicked against the proposed new excise duty. In their eight-point position paper entitled: “Proposed increase in excise duty for Alcoholic and non-alcoholic beverages, wines and spirits,” the OPS argues that the proposed new excise duty will have negative implications on the sustainability of businesses in the country.
The stand of the sector can hardly be faulted. No doubt, the implementation of the hike in excise duty and levies on certain products will likely worsen the challenges already confronting the manufacturing sector. Some of the challenges facing the sector include high energy cost, rejection of some Nigerian agricultural products in the global markets, high cost of production, high regulatory compliance cost, gridlock at the ports, and the importation of fake and substandard products. These have forced some businesses to go under as others relocate to neighbouring West African countries.
Other challenges include unstable power supply, poor infrastructure, high interest rate, foreign exchange scarcity, naira depreciation, multiple taxes in many states. Also, insecurity, inconsistent policies, and unconducive business environment have discouraged local and foreign investments. The inflation rate for the month of October put at 21.09 per cent, was the highest in 20 years. The harsh business environment has also affected profit margins of many businesses.
The government should urgently rescue the manufacturing sector. In the last five years, the sector had contributed 15 per cent to the nation’s Gross Domestic Product (GDP). The National Bureau of Statistics (NBS) reports that the manufacturing sector has suffered a steady decline in recent times. For example, from 2021 to Third Quarter of 2022 (Q3 2022), the sector suffered a decline of 36 per cent in profit margins.
In 2020, the contribution of the manufacturing sector declined to 13 per cent of the country’s total GDP of N152 trillion (over $400billion) from 14.61 per cent in 2021, and 16.67 per cent in 2018. It could be worse by the time the figures for 2022 are released due to rising inflation, foreign exchange instability and flooding. The government can develop a comprehensive and integrated framework that will facilitate the easy movement of goods and services within and outside the country.
However, manufactured goods must be of high quality to avoid rejection in the international markets. Rather than increase the taxes and levies, the manufacturing sector needs some tax holidays to enable them compete with their foreign counterparts. Nigerian economy is still consumption-driven. Therefore, more efforts are required to make the economy productive. The manufacturing sector is the catalyst for achieving the anticipated growth. The introduction of new taxes and levies will not augur well for businesses and the people.
The food and beverage industry contributes the highest in the manufacturing sector, with 33.5 per cent. Some years ago, the World Trade Organisation (WTO) ranked Nigeria as the highest food market in Africa, with significant investment in the local industry. Encouraging the manufacturing sector will go a long way in reducing imports. While the government can increase the taxes on luxury items, it should avoid raising the tax burden of businesses that are contributing to the growth of the economy.
Let the government explore other areas that will generate revenue. Harmonisation of taxes and levies payable by businesses in the formal and informal subsector of the economy will attract investors and increase productivity. Government must prioritise allocation of Forex to the manufacturing sector by the Central Bank of Nigeria.
In addition, government can also consider the removal of 7.5 per cent Value Added Tax (VAT) on diesel until its supply is normalised. The government must ensure timely clearing of goods at the ports and the removal of demurrage for unduly delayed goods. An improved business climate will enable the manufacturing sector and others to thrive.