Stakeholders, experts sound warning on impact of FG’s planned excise duty on soft drinks

The new excise duty on soft drinks announced by the Federal Government may lead to job loss and business failures if implemented, according to stakeholders.

The Nigeria Employers Consultative Association (NECA), The Lagos Chamber of Commerce and Industry (LCCI) and some economists sounded the warning in separate reactions to the Minister of Finance, Budget and National Planning, Zainab Ahmed’s recent announcement.

Director-General, NECA, Timothy Olawale, said the planned tax on non-alcoholic beverages by the Federal Government will kill many businesses in the sector, adding that 250,000 jobs in the sector will come under threat.

Commenting further, Olawale said “In our considered opinion, reintroduction of excise tax on non-alcoholic beverages should not be the case. With the myriad of taxes and levies already being paid by businesses, the reintroduction of excise in a sector with high price elasticity means that government is desirous of killing businesses in the sector completely.

“Once prices are increased, consumers will push back, resulting in sharp decline in demand. With the planned increase in VAT, the introduction of excise will further burden operators in the sector with the following consequences: low demand leading to unsold products; incomes squeeze on businesses that are already struggling with low margin and massive staff layoff, which will affect over 250,000 direct and indirect employees in the sector among others.”

Also reacting to the news of the Federal Government’s plan to tax soft drinks, the Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Mr Muda Yusuf, said that the imposition of another tax on the carbonated drinks, with the manufacturers having paid excise duty on such manufactured products, would ultimately affect the demand for the goods.

He added that consumers may stop buying due to the price increase.

“Any imposition of tax on carbonated drinks will definitely affect the demand for such products. Such imposition of tax would be another tax apart from the excise tax already paid by the manufacturers of such products.

“Ultimately, the demand for such products might drop due to the attendant increase in price that might occur. Those who could buy would buy at a higher price.”

He said the move by the Federal Government goes against the government’s mantra of assisting the real sector, which are the manufacturers.

An ex-president of the Association of National Accountants of Nigeria (ANAN), Dr Sam Nzekwe, who noted that the purchasing power of the average Nigerian was already low, said that the plan would lead to higher inflation rates.

“If this plan of government to tax soft drinks is implemented, then we should be ready for higher rates of inflation. Already, we have high inflation,” he stated.

“The taxes from the federal and state governments are becoming too many that you don’t know where to place them. Coming up with a new tax regime on soft drinks, I don’t think that is what will solve the funding challenges confronting the budget.”

An economist and Senior Lecturer, Lagos Business School, Dr Bongo Adi, said the imposition of excise duty on soft drinks would affect productivity and employment generation in the country.

“I know that the government is trying to ramp up tax revenue; the truth of the matter is that tax is low in Nigeria. But I don’t know why they need to discourage the consumption of soft drinks.

“If you impose excise duty on a commodity that is price-sensitive, the demand will immediately drop as consumers will find alternatives.”

Adi said that the new tax on soft drinks would go against the government’s efforts to stimulate the real sector.

“I think the way to raise tax is first by growing the economy. I have always maintained that this issue of tax is coming at a very wrong time. Our post-recession GDP is less than two per cent, and we are taking measures that will further endanger the growth of the economy,” he added.

A former Director-General, West African Institute of Financial and Economic Management, Prof Akpan Ekpo, said the plan to tax soft drinks was welcome but the government should exercise care in doing that.

“The cost of doing business in Nigeria is already high; it (excise duty) will further increase the cost. That is why I think it has to be very marginal in order not to discourage new investors who want to come into the industry or make existing investors move to other countries.”

Reacting to the government’s plan to tax soft drinks, the Chairman, Food, Beverage and Tobacco subsector of the Manufacturers Association of Nigeria, Mr Paul Gbededo, expressed doubt about government taxing soft drinks, which he described as the drinks for the masses.

He wondered why government would do that when it was always talking about protecting the interest of the masses.

“Imposing tax on soft drinks will impact the poor and the masses. Soft drink is what the poor drink to get energy. If government is looking for additional revenue from taxation, the masses will support taxation of luxury items,” Gbadebo said.

“I am aware that it is fashionable to control sugar intake because of health reasons, but we are not there yet. The poor need the sugar because that is where they derive their energy from. If the government is worried about sweetener intake among Nigerians, they can express this through education, telling people the disadvantages of consuming such substance.”