By Merit Ibe
Manufacturers under the aegis of the Manufacturers Association of Nigeria (MAN), have raised the alarm that the Federal Government’s proposed 20 per cent Ad-valorem Excise Tax on non-alcoholic Beverages, was likely to cause a 0.43 per cent contraction in output and about 40 per cent drop in total industry revenues in the next five years.
They lamented that such move will spell doom for the sector as the effect of the prevailing N10 per litre tax regime is already crippling the sector with its biting effects on their businesses.
The stakeholders are of the view that the carbonated soft drinks sub-sector appear to be having its last decade and may go into extinction sooner than it can be imagined.
They said If this happens, it would not be the first time the Federal Government under the current dispensation would fold its hands and watch a strategic segment of the country’s industrial sub-sector slide into oblivion.
“It has happened with the once budding textile and tyre manufacturing industries that has since collapsed. It has also happened with the paper industry where exports now reign supreme. And we might as well just witness the inglorious trend of industrial collapse.”
Commenting on the issue, the Director-General, MAN, Segun Ajayi-Kadir, affirmed that the new tax regime is likely to cause a 0.43 percent contraction in output and a 40 per cent drop in total industry revenues in the next five years.
He further explained that rather than the estimated revenue increase of N.8 trillion, the directive will cause the beverage sub-sector to lose up to N1.9 trillion in sales revenue between 2022 and 2025.
“The government is estimated to generate an excise tax of N81 billion between 2022 and 2025 from the group, but this will not be sufficient to compensate the corresponding government’s revenue losses in other taxes from the group. This will have an unpleasant impact on employment, households, and consumers, a further cut in jobs for an industry that employs over 1.5 million people, directly and indirectly,’’ he said.
In his analysis, an economist, investment and financial analyst, Mr. Olufemi Awoyemi, asserted that the new Ad-Valorem or percentage tax would put downward pressure on sales by an estimated -16% and increase inventories of finished goods and input costs.
Awoyemi noted that the tax’s impact has unsettled operators’ profit margins which has continued to be chiseled thin.
He described the proposed tax as a very unwise decision that will not only leave the carbonated drinks industry and the entire economy in a conundrum but also destroy the increase in taxation that is envisaged. This means the government will see a short-term rise in revenue, but losses in subsequent years and the eventual closure of factories will result in zero tax for the government in the future.
Tilewa Adebajo, an economic analyst opined: ‘’Imagine that the Federal Government is borrowing to finance debts, not even recurrent or capital expenditure. It is such that the government cannot even access loans from international lenders including the World Bank and the International Monetary Fund whose conditions the government cannot meet. Hence, the new tax regimes seem to be the opportuned window open to the government to generate revenue even when that is coming at huge burden to the companies been exorbitantly taxed.’’ He said this is one of the reason such move has become worrisome because of its retarding effect on the companies being taxed, though it is favourable to government, which sees these taxes as profitable. In the end, the World Bank’s economic advice on tax regimes to raise revenues by governments in developing countries including Nigeria would spell doom for manufacturers and that should be discarded.
On his part, Mr. Teslim Shitta-Bay, an economist during a business programme: ‘’Today’s Business on SilverbirdTV’’ asserted that in government policies, taxes are expected to stimulate growth and not do otherwise. According to Shitta-Bay: ‘’the scale of the tax in the carbonated soft drin sector is too high. The proposed additional 20 percent 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. Albeit, the position of government is understandable; the government has been in a tight situation in term of its finances, so there’s rather a need for them to pursue other windows of revenue generation. However, this particular direction is primitive. Instead, what the government must do is to work on blocking the exorbitant holes in its current spending. By design and implementation, taxes are supposed to stimulate growth; a tax design is to instigate. You create an environment for expansion in consumption and productivity, so you need a tax that is not primitive’’, he asserted.