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Home Editorial

The new tax on carbonated drinks

21st January 2022
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The Federal Government recently announced that Nigerians will soon begin to pay tax on non-alcoholic, carbonated and sweetened beverages. It explained that the move is one of its 2022 budget priorities and part of the provisions of the new 2021 Finance Bill currently before the National Assembly. The plan is a pivotal government’s measure to generate revenue.  Minister of Finance, Budget and National Planning, Zainab Ahmed, disclosed the new excise duty on soft drinks during the presentation of the breakdown of the 2022 budget.

The imposition of N10 tax per litre of soft drink, according to the government, is to also discourage excessive consumption of sugar in beverages, which contributes to harmful diseases such as diabetes, obesity and others. According to reports, about four million Nigerians suffer from diabetes. However, other factors beyond the consumption of excessive sugar can predispose one to diabetes. 

While it is good to safeguard the health of Nigerians, government should not use it as an alibi to impose unnecessary tax on carbonated beverages. If government’s objective was truly health-related, the proper thing to do would have been to mandate the National Agency for Food, Drug Administration and Control (NAFDAC) to regulate the production of carbonated drinks and reduce their negative effects on human health. Given the prevailing bad economy and unfriendly business climate, we fault the introduction of the excise duty on soft drinks. It is inappropriate, untimely and insensitive.

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The best thing the government should do now is to rescind the decision because it is going to impoverish more Nigerians. It is not enough to consider the gains of the excise duty without evaluating its consequences to the economy and ordinary Nigerians who consume such drinks. According to government’s projections, it intends to raise over N200billion from the new tax between this year and 2025, while the Nigeria Customs Service (NCS) says it will rake in about N127billion as excise duty on carbonated drinks alone.

The Comptroller-General of the customs, Col. Hammed Ali (retd), had told the Senate two years ago, that there was need to initiate policy that would discourage consumption of soft drinks, saying excessive sugar in most of the brands was responsible for some health challenges that Nigerians suffer. While this claim may not be dismissed completely, the other side of the argument is that the tax policy could lead to the loss of over 15,000 direct and indirect jobs. This is huge, especially at this time that unemployment and poverty rates are rising steadily.

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Moreover, it is predicted that the food and beverage subsector will lose about 40 per cent of its sales revenues. This translates to about N1.9trillion. Available statistics show that the sector has contributed about N202billion as Value Added Tax (VAT) to government treasury in the last five years. The food and beverage sector contributes 38 per cent to the nation’s Gross Domestic Product (GDP) and about 22.5 per cent of jobs in the manufacturing sector. If the government goes ahead with the imposition of the excise duty, it is estimated that this will lead to 0.43 per cent contraction in the manufacturing sector, as well as high production costs, with adverse consequences on small and micro-enterprises in the nonalcoholic and beverage distribution chain. The ripple effect could be too much for ordinary Nigerians, who are already overtaxed, to bear.

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We wonder why government policymakers often embark on the low road in their effort to generate revenue instead of designing better revenue options. One of such options is to ensure stricter enforcement of banned imported drinks to protect local production.  There is need for the government to find long-term solutions to revenue shortages rather than the frequent resort to desperate, quick-fix measures to generate funds. Our tax system should be progressive and made to have a ‘human face.’

We abhor any tax targeted at the poor. Instead of the new tax on soft drinks, let government tax more those exotic wines the rich consume. Any tax that will lead to retrenchment in carbonated drinks sector or make such companies leave our shores to neighbouring West African countries must be avoided.  The welfare of the citizens should be the primary concern of government. Therefore, government should look at the position of labour and the organised private sector, and rescind its decision on imposing new tax on carbonated drinks.

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