The Organised Private Sector, OPS, has raised the alarm that government’s choking policies were pushing manufacturing and other businesses out of existence.
OPS made up of five business groups in Nigeria, rejected the government’s proposed increase in excise duty on food and beverages, especially on alcoholic, non-alcoholic beverages drnks & tobacco.
The five groups, comprising the Manufacturers Association of Nigeria, MAN, Nigeria Association of Chambers of Commerce, Industry, Mines and Agriculture, NACCIMA, Nigeria Employers Consultative Association, NECA, Nigeria Association of Small-Scale Industries, NASSI, and Nigeria Association of Small and Medium Enterprises, NASME, lamented that there were no fewer than 17 bills pending in the National Assembly, NASS, aimed at imposing more levies on the private sector, with negative implications on business’ sustainability of businesses.
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In an 8-point position paper, titled “Proposed Increase in Exercise Duty for Tobacco, Spirit, Alcoholic and Non-Alcoholic Beverages,’’ OPS also contended that rising production costs, epileptic power supply, insecurity, access to financing, multiple taxation were further compounding the woes of businesses in Nigeria.
It stated: “There is doubt that the Nigerian economy is witnessing some growth.
“However, the rate of growth is far below what is required to meaningfully impact the citizens positively. The contribution of the manufacturing industry over the years, in terms of employment generation and government revenue, cannot be over emphasized, contributing annually about 15 per cent to GDP in the last five years.
‘’One of the highest contributing sectors to the growth of the industry is the food, beverage and tobacco sector. The World Trade Organisation, WTO, ranks Nigeria as the largest food market in Africa, with significant investment in the local industry and a high level of imports.
‘’The food, beverage and tobacco sector is estimated to contribute 33.5 per cent of the manufacturing industry value. In terms of number of companies, this sector remains the largest in manufacturing in Nigeria.”
“The manufacturing sector in Nigeria faces common challenges that must be overcome before the sector can play its expected role in the growth process. Such challenges have impeded the competiveness of Nigerian products and, therefore, rendered such products unattractive in the global arena.
‘’Some of these include lack of competitiveness arising from prevalent high cost of production, including taxes and levies. This has also been compounded by incessant, unbridled smuggling/dumping of highly subsidized cheap and substandard imported products.
“Proliferation of adulterated/fake products without regulatory constraints/checks forcing genuine businesses to go extinct and non-availability/difficulty in securing required forex to do legitimate business in the country.
‘’This has continued to be a major issue the industry faces, especially in these times of severe currency devaluation, deficiencies in physical infrastructure- failed road network, inefficient railway system, frequent power outages and inefficient waterways.
‘’Policy inadequacy, inconsistency and reversals are major constraints to industrialization. Example is the planned increase in excise duty on alcoholic, non-alcoholic beverages & tobacco at a time the sector is ailing and needs the support of government for survival.
“Multiple taxation/levies, which have remained a major burden on businesses, particularly manufacturing, as a result of conflicting constitutional provisions and ineffective implementation of existing laws in the quest to generate revenue by states and local government councils.
“Poor administration of the ports arising from non-establishment of regulatory agencies to manage the activities of port operators; high port charges by concessionaires; lack of adequate port handling equipment; discrepancies on HS Code interpretation by the Nigeria Customs Service leading to abandonment of cargoes by importers.
“Import and trade restrictions/challenges- import and export costs in Nigeria are almost double of those of other regions.
“In addition, the Central Bank of Nigeria, CBN, ban on the importation of 41 foreign products, some of which are intermediate products, from accessing forex as well as the imposition of levy on some imports, constitute barriers to trade and have far-reaching implications for the manufacturing sector.”
The OPS said it was not unaware of debate in the National Assembly on some bills aimed at imposing more levies on the private sector, with negative implications on the sustainability of businesses.
It stated: ‘’The bills include the National Youth Service Corps Trust Fund (Est) Bill, 2021 HB. 1795.
“The bill, now transmitted to the President, seeks to establish the NYSC Trust Fund (NYSCTF) for the purpose of providing sustainable source of funds for the NYSC, skill acquisition training, empowerment of corps members, training and retraining of the personnel of the NYSC as well as development of camps and NYSC formations and facilities.
‘’It seeks to impose levy of 1% on net profit of companies operating in Nigeria. The bill has been passed in the House of Representatives and has gone through its first reading in the Senate.
“Youth Entrepreneurship Development Trust Fund (Establishment) Bill, 2021 HB. 1448. The bill seeks to create a fund which shall be used to provide financial support to Nigerian youths with entrepreneurship skills.
‘’It seeks to impose levy of one per cent profit as declared by each private entity in the country. It is awaiting its third reading in the House of Representatives. There is also the National Health Fund Bill, 2021 HB. 1823.
‘’The bill seeks to provide a framework for the establishment of the National Health Fund with the sole responsibility of equipping and providing infrastructural and manpower development at federal hospitals across the federation.
‘’Section 6 provides for the imposition, collection, administration and monitoring of levies & gifts amongst others. The bill in its current form, does not include specifics about what percentage will be imposed as levy. This is expected to be introduced when it is reviewed by the relevant House committee.
“There is the Raw Materials Research and Development Council Bill, 2022 HB. 47 in the Senate. The bill seeks to amend the Raw Materials Research and Development Council and establish a new council with powers to do research on raw materials and related matters. It seeks to impose a levy of 2 per cent surcharge on all imports.
“There is also National Tax Crimes Commission (Establishment) Bill, 2022 SB. 951. The bill seeks to establish the National Tax Crimes Commission to promote economic efficiency and effectiveness in administering the nation’s tax system, detect/deter fraud and abuse in taxation and to protect taxpayer’s rights.
“This poses the risk of additional regulatory compliance obligations, among several other bills.’’
Excise duty in Nigeria
Continuing, the OPS stated: “An excise is any duty levied on manufactured product at the point of manufacture, rather than at sale. By this assertion, excise duty directly adds to cost of production, which is critical to competitiveness.
‘’Excise duty in Nigeria is levied on beer/stout, wine/sprit, cigarette, carbonated drinks, some manufactured or goods imported into the country at 20 percent rate. The Finance Act 2021 introduced excise duty of N10/liter on non-alcoholic carbonated and sweetened beverages drinks.
“The proposed increase in excise duty by the Tariff Technical Committee, TTC, of the Federal Ministry of Finance in June 2022 is summarized as follows: Tobacco: 30 per cent ad valorem rate with a specific rate of NGN 4.2/stick of cigarette for 2022; It is planned to be N8.40 in 2023 & 2024? Beer: N40/litre in 2002: N75/litre in 2023 and N100 /litre in 2024.
‘’Wines: 20 per cent ad valorem with a specific rate of N50/litre in 2022; It is proposed to be N75 in 2023 and N100 in 2024.
“Spirits: 20 per cent ad valorem rate with a specific rate of N50/litre in 2022; This will move up to N150 per litre in 2023 and N200 in 2024, in addition to the current specific of N10 per litre.
Beverages: 20 per cent ad valorem to be introduced in 2023 plus the existing N10 per litre specific introduced this year. The food, beverage and tobacco sector has been the sole driver of manufacturing in the country for a good number of years, including the difficult period of COVID-19 pandemic.
‘’The sector has also been a critical driver of employment and government revenue, considering the huge number of workers, numerous direct and indirect taxes, levies and charges it takes up.
“In the past, poor policies such as this had triggered capital flight and driven many vibrant manufacturing companies to neighbouring countries.”
Exposure of businesses
The OPS noted that it “is aware that tax plays a crucial role in the development of any economy in the context of revenue generation and tool for economic stabilization.
‘’As a revenue generator, it provides the government with the funds needed for meeting the fiscal responsivities. Taxes and tax systems are, therefore, central to any effort to build a nation, including the developing world such of ours.
‘’Unfortunately, despite the numerous taxes and the huge business activities in the country, tax performance has been far below potential. Nigerian tax performance has consistently been one of the world’s poorest, even in comparison with our sister African countries standing a mere eight per cent.
“Tax administration in Nigeria has negative consequences on businesses, including manufacturing. This is borne out of the almost innumerable taxes, levies and duties that businesses contend with routinely.
‘’Incidentally, for manufacturing, tax has been a huge burden that continues to impact significantly on all indices of manufacturing: investment, output, profit, capacity utilization, employment and any prospect of expansion.
“Businesses, including manufacturing firms, are compelled to pay over 50 types of taxes and sundry charges, as follows Corporate Profit tax, Import duties, Export duties, Excise duties, Rents, Capital Gains tax, Personal Income tax (on behalf of workers), Value Added tax, and Stamp duties.
‘’Others are Property tax, Licenses, Motor Parking fee, Motor Vehicle fee, Capital, Withholding tax, Land tax, Market License fee, Road tax, Business Premises, dividend tax, NHIS levy, Advert fee, Regulation fees (Registration and Approval fees from say CAC, SON, NAFDAC, etc.), the new NYSC Tax as well as the regular user charges such as electricity, water, disposal fee, etc.
“In 2018, businesses were confronted with the re-introduction of excise duty on soaps and detergents, Cosmetics, fruit Juice, telephone recharge card vouchers, corrugated paper, paper board, carton boxes and cases, toilet papers, etc, and a few years later, 2022 to be specific, excise duty on carbonated drinks was introduced at N10 per litre.
‘’Against this backdrop, the proposed increase in excise duty for beer (N40), alcoholic wine/hot drinks (N50), a stick of cigarette (N4.20) and sugar sweetened beverages (N10) plus 20 per cent ad valorem is not welcoming to the industry.
‘’We, therefore, see the proposed increase in excise duties as the last straw that breaks the camel’s back if implemented.
“This is because businesses involved will be adversely affected in terms of sales, capacity utilization, investment, employment, profitability, etc. and we strongly believe this will be a counter-productive move to the government’s revenue mobilization objective.”
Threats to business sustainability
It noted: “The business climate in the country is currently harsh and is affecting business profitability and productivity adversely.
“Rising production costs, epileptic power supply, insecurity, access to financing, multiple taxation by government agencies are some of the challenges we are facing currently.
‘’Companies are still struggling to survive presently with tax burdens in various forms and the addition of a new tax levy is definitely not a move that favours the current business environment.
“According to the latest report from the National Bureau of Statistics, the inflation rate, for August, 2022 climbed to 20.52 percent, this is the highest in a very long time. Simply put, all prices will increase and purchasing power will be eroded.
‘’Dwindling income growth, weak naira, inflationary pressure, struggling economic growth among others threatens the continued survival and existence of companies and households. Without mincing words, the timing of this intended policy is not in the best interest of businesses that are just recovering from the pandemic era.
“The impact of this policy if implemented, would be negatively massive and would affect every one of us directly and indirectly.
“The number of moribund industries will increase, influx of cheaper and unregistered brands as substitute for the known brands which is hazardous for public health, rise in unemployment, poverty and social vices would increase drastically among others.
‘’In addition to the foregoing, the planned introduction and increases will make products more expensive out of the reach of many Nigerians.
“The economy is over-heated, and the post pandemic era should seek measures to revamp the economy as the realities of inflation is staring us in the face, with poverty increasing sporadically.
“The business environment does not deserve this treatment at this time as the ripple effect of already existing tax levies are evident in the price burden which is shared by the producers and the consumers.
Negative effects of increasing excise duty
“Not to debate the purpose and importance of excise duty, which is mainly to raise revenue for the government, but we must, however, ask ourselves how much water you can get from a pond to fill an ocean.
‘’Excise duty collected on goods manufactured within Nigeria is only one of the many fiscal policy measures that can be used to meet government’s need for revenue.
“However, failure to truly explore and exploit all other available options may mean the death of the goose that lays the golden eggs.
‘’The Nigerian economy is currently still a consumption-driven one. Efforts to incline it towards local production and manufacturing have not gained the kind of momentum required to achieve this goal.
“One then wonders why in the same breath, government would over burden that same fledgling ambition via taxation. There is no other sector that immediately needs input and support of government in order to become thriving as much as the manufacturing sector.
“An imposition such as this is bound to trigger a negative chain of events that will neither augur well for industries, the general populace nor for government itself.
‘’The negative effects were enumerated as follows – negative pricing trends – in addition to recent automatic and erratic hike in prices of everything due to the cost of money, and the instability of the Naira, a further increase in the cost of production and consumption, via excise, will create an insurmountable hurdle as manufacturers scramble to distribute the additional cost throughout the entire value chain, all the way to the consumer.
“Loss of Revenue to Government: These planned increase in excise duty on these products will result in significant drop in demand.
“The implication of this is a huge drop in industry revenue which by extension, will impact its being able to collect various taxes, for example, Company Income Tax, Value-added Tax, Tertiary Education Tax etc.’
The OPS stated further: “We are aware of the current low revenue base of the country and the implication on the fiscal responsibilities of the government. Therefore, we support the government in trying to improve its revenue through the various drives.
‘’However, it is important that such drive should not crowd-out existing investments or deter prospective ones. Government should carefully weigh daunting business environment alongside fiscal pressure.
‘’In this light, we urge government to weigh the extremely difficult business environment alongside its fiscal pressures.
“Currently, businesses are bearing the brunt of ever-rising inflation, greatly escalating cost of doing business, Naira devaluation, prohibitive cost of borrowing, infrastructural deficit and insecurity across the country.
‘’The inadequate supply of foreign exchange to purchase raw materials and machinery, or to pay suppliers further compound the problem.
“A recent report by the National Bureau of Statistics, NBS, which disclosed that the Nigerian manufacturing sector suffered a significant decline of 36 per cent in profit margins from 2021 to 2022, corroborates our position.
‘’To increase excise rates beyond those set out in the roadmap, which has a clear ripple effect on the cost of our products, especially so soon after the rates increase in June 2022 and bearing in mind the cost-of-living situation for consumers, means that the industry is going to be faced with a myriad of potential unintended consequences.
“Recent economic growth in Nigeria has been driven largely by the non-oil sector. Subjecting the sector to further hardship does not bode well for the future of the industry, nor for the growth of government revenue in 2023 and beyond.
‘’The minimal growth of the economy is as an indicator that a huge tax hike would not achieve the desired results for all stakeholders.
“The government should develop a comprehensive and integrated framework that will facilitate the intentional movement of operators in the informal sector to the formal sector.
‘’This should be with active involvement of the OPSN in the development of the required fiscal policy solution to address the myriad of problems being currently faced.
“Government will need to partner with the OPS to drive tax compliance within the value chain of its member-organisations thus bringing in more revenue to it.
‘’Government should widen the tax net, rather than increasing the tax base or the tax burden of existing taxpayers. e.g. the current trend where companies pay over 12 corporate taxes not to mention the proposed new taxes emanating from new bills of parliament, as enumerated above and over 62 taxes/levies and fees to different tiers of government.
‘’The government should promote harmonization of taxes/levies and fees payable by businesses in Nigeria to attract more investment. No doubt, this will translate to higher productivity and more tax revenue for the Government in the medium and long term.
“The government should increase taxes/levy on ostentatious/luxurious imported goods, manage existing forex inflow productively and be more vigorous and genuine in combating crude oil theft.
“Government should improve the operating environment to support higher productivity in the industries, so as to create higher tax revenue and encourage value addition on exported products to increase foreign exchange earnings.”
OPS explained that already, the industries, including the food, beverages and tobacco, were overburdened by almost innumerable taxes and levies, adding that they also suffered non-tax challenges, such as inadequate support infrastructure, high cost of borrowings, unfavourable exchange rate parity, regulatory charges and many more.
‘’These costs account for the high cost of production and low competitiveness of the economy. Additional tax will therefore, not help anybody, but might be the final killer punch.”
It requested that “Government maintains status quo of no excise increases – other than as prescribed in the 2022 Fiscal Policy Measures approved by the President earlier this year (i.e., the 3-year Roadmap which commenced on 1st June 2022 should remain).
“In order not to jeopardize the successful implementation of the Private Sector component of the National Development Plan 2021-2025, Government should rather, focus on creating a favourable business environment that will enhance job creation and promote enterprise competitiveness.
“Representatives of the Organized Private Sector should be given the opportunity to engage and make representations to Government and its committees on the impact of current roadmap and expected future impact.
“Retaining the roadmap guarantees that Government’s dual objectives of revenue generation and reduced cigarette consumption will be met – (1) raising incremental revenue for year 2023 and 2024 under the current roadmap; and (2) reducing the consumption of cigarettes between 2-3% annually.”