May 19, 2018

Alcoholic beverages: Excise duty rates hike and looming job loss

Alcohol, Zaria

IN March, the Minister of Finance, Kemi Adeosun announced on behalf of the Federal Government that new  excise duty  rates have been approved for alcoholic beverages and tobacco with effect from June 4, 2018.

According to the Minister, the new excise duty  rates were  spread  over a three-year  period from 2018 to 2020 in order to moderate the impact on prices of the products.

She said the new excise duty regimes followed all-inclusive stakeholder engagements by the Tariff Technical Committee of the Federal Ministry of Finance with key industry stakeholders.

According to her, the upward review of the excise duty rates for alcoholic beverages and tobacco was  to achieve a dual benefit of raising the government’s fiscal revenues and reducing the health hazards associated with tobacco-related diseases and alcohol abuse.

While the ideas behind the review are quite noble, there also seems to be a lack of absolute comprehension of the economic consequences, especially in terms of job loss. Unemployment rate in Nigeria, according to the National Bureau of Statistics, is currently over 18%, and with about 250, 000 direct and indirect jobs set to be lost due to this new policy, things are only going to get worse and the pressure will spread out into the entire system.

The current excise at 20% for Spirits amounts to N31 per Litre while the new one announced by the Minister amounts to N200 per Litre for Spirits and N150 per Litre for Wines; this is over 500% increase at a go, by far the highest within the sub-sector.

The Excise Duty currently paid by the Wines & Spirits Sector stands at 20% across board, while  under the new approved excise duty tariff, it is fixed at 67% for the  wines and Spirits sub-sectors respectively.

The spirits and wine sub-sector represents 6% by volume of the alcoholic beverages sector and is dominated by local distillers, the group that will be most affected by this decision.

Checks revealed that the data used in computing the recently approved excise tariff were largely luxury foreign products to which excise tariff will not apply like it will on the fledging but largely underdeveloped local sub-sector.

Domestic spirits production is dominant in Nigeria, accounting for an average of 53% of spirits consumption over the 2012 to 2016 period. With an investment of about N420 billion, it will be Nigeria’s loss if this industry is crippled, and even worse for those whose source of livelihood will be cut off.

While the industry remain fragile, Local distillers have recently made significant investments  to grow capacity as well as  achieve backward integration, but all that is at the danger of being washed away by this latest astronomical increase in excise duties which many have said to be inconsiderable.

Contrary to the  Minister’s claims, neither the Distillers and Blenders Association of Nigeria, DIBAN, nor the Manufacturers Association of Nigeria, MAN, confirmed that they were consulted before the decision was taken. The economic impact of such drastic decision is well known to everyone.

The jobs of over 250,000 Nigerians will be in jeopardy. Consequently, family cohesion, social stability and economic wellbeing of at least five million people will be threatened.

The astronomical increase in tariffs on locally produced goods such as Spirits and Wine is a systematic way of destroying credible local distilling industry with the implication of unleashing avalanche of illicit and unsafe drinks on the Nigerian masses.

With this danger in mind, a bill has also been recently sponsored by Hon Francis Charles Uduyok, who envisages that the country would be worse off with more people out of their jobs as has been the trend in recent times.

‘’Killing a part of the local industry in our economy that has barely gone out of recession spells doom for the nation and the end product will be a nationwide sack/retrenchment of workers in this industry thus throwing more Nigerians into the already saturated labour markets,’’ he said.

The danger of increasing the restiveness and disgruntlement of a citizenry under enormous socio-economic pressure as we approach the 2019 General Elections can only be imagined.

According to Lateef Oyelekan, President of The National Union of Food Beverage and Tobacco Employees (NUFBTE), the union had written the Minister of Labour and Employment, Senator Chris Ngige, on the implications of the new tariff, which may further exacerbate the problem of unemployment in the country, and that the drive towards foreign direct investment would be jeopardised as no investor would like to invest in an economy with low return on investment.

“The British American Tobacco (BAT) has just decided to make Nigeria its African headquarters where all its products for other African countries would be produced, but this may make the company to relocate to any other African country with much more favourable policy.

“Our employers have already notified us that it would lead to shut down of some of their companies. What government should be doing is to come up with policy that will discourage employers from downsizing, but before they can do that, tariff has to be reasonable.

“This new policy of the government will increase the cost of production and if that happens, the employers would have to look for a way of cutting cost, and workers are always the first option,” he said.

According to him, the union, in a bid to register their displeasure has also vowed to down tools soon.

A study on Excise Duty Changes for Spirits and Wine conducted by KPMG also revealed that given the challenges of border control and the illicit market, price increase driven by higher excise duty rates may also result in loss of government revenue. This means that even jobs that are un-associated with the distilling industry can become affected by this decision.

If anything, the government should at this time be encouraging local industries through provision of enabling infrastructures and reasonable excise duty rates that can enable them to flourish and affect the worrisome unemployment rate in the country.

Max Amuchie,