Here’s Why Operators Are Kicking Against Alcohol, Tobacco Tariff Hike
Nigeria’s Finance Minister Kemi Adeosun speaks at a news conference in Lagos
The upward review of excise duty on alcohol and tobacco kicked off Monday. The government envisaged that the new rates, which will be spread over a three-year period, will raise revenue and reduce the health hazards from tobacco-related diseases and alcohol abuse. But local manufacturers are kicking, insisting that the policy will hurt investments and trigger massive job losses. They are calling for a reversal to save the nation’s fledgling manufacturing industry,.
The new excise duty regimes on locally produced alcoholic beverages and tobacco products, which kicked off last Monday, may have set the stage for a major confrontation between the Federal Government and local manufacturers.
Already, members of the Distillers and Blenders Association of Nigeria (DIBAN), a sectoral group of the Manufacturers Association of Nigeria (MAN), are literarily up in arms, calling on the Federal Government to halt the implementation of the hike and hold genuine consultation with stakeholders in the wines and spirits market.
DIBAN Chairman Patrick Anegbe did not mince words when he said the policy’s implementation must be reversed to save the jobs of over 25, 000 Nigerians and over 250, 000 connected Small and Medium Enterprises (SMEs) staff. “Our industry investment of over N420 billion is being threatened by the recent upward review of excise duties on locally produced wines and spirits,” he added at a press conference on “The new hike in excise duty on alcoholic beverages” organised by the group in Lagos, on Wednesday.
The Federal Government may have inadvertently drawn the battle line between it and local manufacturers particularly distillers when its upward review of excise duty on local alcohol and tobacco came into force on Monday, after a 90-day grace to local manufacturers. Under the new rates, approved in March by President Muhammadu Buhari, beer and stout will attract 0.30 per centilitre this year and 0.35 per centiliter in 2019 and 2020. Wine will attract N1.25 per centiliter in 2018 and N1.50 per next year and 2020. Also, N1.50 per centiliter was approved for spirits in 2018, N1.75 next year and N2 in 2020.
Similarly, in addition to the 20 per cent ad valorem rate, each stick of cigarette will attract N1 specific rate (N20 per pack of 20 sticks) in 2018; N2 specific rate per stick (N40 per pack of 20 sticks) in 2019, and N2.90k specific rate per stick (N58 per pack of 20 sticks) in 2020. The excise duty hike on both products, according to Minister of Finance, Mrs. Kemi Adeosun, would be spread over a three-year period to moderate the impact on prices of the products.
With the implementation of the new excise duty regime, it was envisaged that Nigeria’s cumulative specific excise duty rate for tobacco, for instance, would be 23.2 per cent of the price of the most sold brand, which is still lower than Algeria, South Africa and The Gambia, which have 38.14 per cent, 36.52 per cent and 30 per cent. Mrs. Adeosun had in March said peer country comparisons carried out showed that Nigeria was behind the curve in the review of excise duty rates on alcoholic beverages and tobacco. She said the Tariff Technical Committee (TCC) recommended the slight adjustment in the excise duty charges after cautious considerations of the government’s fiscal policy measures for the year and the reports of the World Bank and the International Monetary Fund (IMF) Technical Assistance Mission on Nigeria’s fiscal policy. The minster added that the effect of the excise duty rates adjustment on trade and investment was also assessed by the Federal Ministry of Trade and Investment, which adopted the recommendations of the TTC.
She also said the new excise duty regimes were in line with the Economic Community of West African States (ECOWAS) directive on the harmonisation of member-states’ legislations on excise duties. The ECOWAS Council of Ministers had at its 62nd and 79th Ordinary Sessions in Abuja in May 2009 and December 2017, issued directives on the harmonisation of the ECOWAS Member-States’ Legislations on Excise Duties. The directives, The Nation learnt, sought to harmonise member-states’ legislations on excise duties on non-oil products and also stipulate the scope of application, rate of taxation, taxable event and amount. The overall objectives of the review of the excise duty rates for tobacco and alcohol, according to Adeosun, were to raise government’s fiscal revenues and reduce the health hazards associated with tobacco-related diseases and alcohol abuse.
But some experts, stakeholders and local manufacturers particularly distillers are not swayed. For instance, as far as Anegbe is concerned, the policy was a purely IMF sponsored agenda camouflaged as a health concern. He said DIBAN, under the auspices of MAN, therefore, rejects what he described as “the new astronomical hike in excise duty being selectively imposed on the local spirits and wine industry.”
According to Anegbe, the new duty on local wines and spirits translated to an increase of over 500 per cent, from the current average of N30 per litre to N150 per litre in the first year and N200 per litre subsequently. “This translates to an increase from current average duty of N270 to N1, 350 per case (carton) in the first year and N270 to N1, 800 per case (carton) from the second year,” he lamented. Anegbe expressed fears that if the implementation of the new duty is sustained, there will be massive job losses arising from low demand of local products. He also said it will lead to the collapse of the indigenous wines and spirits segment and pave way for the complete takeover of the market by imported and smuggled brands.
Besides, the spillover effect, he said, will be massive as key sectors of the economy and businesses such as packaging industries, bottles, cartons, labels, cork, laminates, glue, ink, printing, laboratory, marketing, consulting, and media, among others, will suffer. The DIBAN Chairman also argued that the imposition of exorbitant duties on locally manufactured goods contradicts government’s objective of growing local industries and shoring up revenues. He said, for instance, that the massive staff lay off, which is sure to hit the sector, will take its toll on revenue generated by government on Pay As You Earn (PAYE) taxes, which is estimated at N60 billion per annum.
“At 600mn litres and N200 per litre, government is asking for N120 billion in tax whereas the industry does not even generate up to half of that in sales. Therefore, jacking up the duty by 500 per cent overnight will deter businesses and investors from investing in Nigeria,” Anegbe said, adding that many foreign investors have seen a huge market in Nigeria’s alcohol industry, which is estimated at over $2 billion. As if the negative impacts of the policy were not bad enough, the DIBAN chief said there was no prior engagement or consultation with indigenous producers of wines and spirits before adopting the new excise duty. “The Association made unsuccessful frantic attempts at getting the attention of the Minister of Finance to hear us put before migration from the current ad valorem to the specific scheme,” he said.
Some development experts have come down hard on the new policy, describing it as wrongly-headed and counter-productive. For instance, Business Renaissance Group President Mr. Omife Omife said the policy could affect investments in the manufacturing sector. He, therefore, called on the Federal Government to reverse the policy. “Nothing should be done to endanger the sector. It is apparent that the announced astronomical increase in excise duty is bound to endanger the sector if not reviewed and rescinded,” he said.
Omife warned, for instance, that with the new tariff regime, firms in the sector would face high risk of possible shutdown, especially in the low price segment, which accounts for 78.65 per cent volume of the spirits and wines segment. He noted that the new excise duty would also penalise average Nigerians as they would no longer be able to afford the new prices that include the exorbitant excise duty.
The expert also pointed out that given the challenges of border control and illicit market, the attractiveness of the price increase driven by higher duty would result in smugglers bringing in unregistered and untaxed products. This, he said, would result to loss of revenue to the government. “The astronomical increase in the tariff is counter-productive and will lead to massive job loss, turn the country into a dump yard for foreign products, further pauperise Nigerians and stifle growth in an otherwise resilient sector of the economy,” Omife argued.
Prior to the take off of the policy, the Senate also kicked, insisting that the tariff hike will hurt local distillers of beverages. In a motion titled, “Urgent Need to Review the Proposed Excise Tariff Increment in Order to Save Local Distillers of Beverages from Looming Extinction,” Senator Benjamin Uwajumogu (APC, Imo North) said with the tariff increase, the fate of the industry hangs in the balance.
Uwajumogu, argued, for instance, that the beverage industry, which is one of the oldest surviving sectors, employs about 250, 000 Nigerians and that one of the consequences of the tariff hike would be the potential loss of these jobs. He added that direct and indirect job losses would further worsen the deteriorating unemployment situation in the country with the attendant social consequences. “The tariff increase will kill the fledgling industry, which is presently fragile and may wreak incalculable damage on our economy.
“It will also lead to increase in smuggling activities, huge capital flight across borders to more investor friendly countries, with the attendant danger of increase in restiveness amongst the citizenry under enormous socio economic pressure,” Uwajumogu said. The Senator also said the negative impact on the economy, which is still emerging from recession, would further destroy the chances of the economy for full recovery, warning that an investment portfolio exceeding N420 billion was under real threat of extinction. However, there are some stakeholders who feel that the new tariff regime was a welcome development. For instance, the policy bodes well with religious organisations, local and international Non-Governmental Organisations (NGOs), who have been vigorously campaigning for the control of what they termed as the “tobacco epidemic” and the need to discourage alcohol abuse.
Some of them believe that Nigeria lacks very stringent policies or measures on the production and marketing of tobacco and alcohol. They argue that the country requires vigorous and multi-pronged strategies in the control of the two products beyond the “Drink Responsibly” and “Smokers are Liable to Die Young” themes commonly used by brewers and tobacco companies, in their marketing campaigns. This was why the duty hike gladdened the Environmental Rights Action/Friends of the Earth Nigeria (ERA/FoEN). ERA/FoEN in a statement by its Head of Media and Campaigns, Philip Jakpor, said the group’s Deputy Executive Director, Akinbode Oluwafemi, lauded the Federal Government for the review.
He also went a notch higher, calling on the Federal Government to match its rates with that of other countries across Africa, noting that the new rates still fell short of the more aggressive but very effective recommendations of the World Health Organisation (WHO) in Article 6 of the Framework Convention on Tobacco Control (FCTC), which is 70 per cent excise on tobacco products. Will government bow to superior economic arguments and reverse the policy? Are morality and health concerns enough reasons to sustain the policy? Therein lies the dilemma.