Ahmed, treasury Tzar, goes for broke with dust raising drink tax

BY PHILLIP ISAKPA & ONOME AMUGE

• Nigeria’s revenue chasing finance minister test waters ahead of fuel subsidy battle
• Says carbonated tax for revenue, reduce sugar induced health crisis
• Nigerians weigh economic, health implications

Nigeria is desperate for revenues. Its treasury does not have plenty of cash to provide for all its needs. The country is already highly geared on borrowing, both domestic and foreign, with also a high ‘ways and means’ exposure with the Central Bank of Nigeria (CBN), which is unaccounted for in the debt profile released by the Debt Management Office (DMO).
Nigeria has been running deficit budgets for years that it now seems like a normal thing in the government’s revenue and expenditure management framework.
Zainab Ahmed, the keeper of Nigeria’s purse and Treasury Tzar, has a portfolio which puts her on the line to answer a lot of questions on the state of the financial health of Nigeria. As minister of finance, budget and national planning, she could turn out to be one of the worst finance ministers Nigeria has ever had sitting atop the management of years of deficit budgeting, a depleted treasury, revenue shortfall, and economic plans that have produced results that citizens never get to feel or see.
In the Treasury’s Tsar’s quest to beef up revenue, Ahmed has succeeded in pushing through two Finance Bills. The 2020 Finance Act enabled the Treasury to soak up some funds and what included an attempt to expand the tax net. The 2021 Finance Act, an upgrade of government’s 2020 foraging for the elusive revenues, is also designed to enable Ahmed, the Tsar of the Nigerian Treasury, to rake in more revenues to fund government’s expenditure.
It is a style that has left many wondering if this has now turned to ‘Government by Finance Acts’, with some even suggesting that it would not come as a surprise if the government pushes a Finance Bill 2022 for the few months of 2023 it would have left in office, adding that it is now desperate to repair an economy it has led into a hole after well over six years in power.
Government’s desperation to dig out of the present economic hole, especially with regards to revenue generation, is wide ranging. In the run up to elections in 2015, during campaigns across the country, Muhammadu Buhari, then All Progressives Congress (APC) presidential candidate, who eventually won the presidential election and has been president since then, including winning a second term in 2019, pooh-poohed claims by the ruling government at the time, that the nation was paying subsidies on petrol running into trillions of naira.
Petroleum subsidy payment had then been mired in sleaze, costing the Nigerian Treasury trillions of naira annually, following the abandonment of local refining as the nation’s four refineries went comatose and total reliance on imports of petroleum products made from crude oil that Nigeria is one of the top oil producers in the world.
After almost seven years leading the country and paying more subsidies than what is received from crude oil exports, Zainab Ahmed, the Tsar of the Treasury, who peeps in daily to see how empty it is, and President Buhari who pooh-poohed the existence of petroleum subsidy in 2015, are now planning to stop the bleeding by cutting loose the umbilical cord of subsidy from the Treasury.
Although Ahmed has been pushing this plan since last year and has set a February date for implication, many say she knows it is going to be one of the biggest battles she will fight as finance minister.
And like a warrior testing the grounds of the battlefield before the war, Ahmed has picked a N10 per litre tax on carbonated drinks as a testing ground. She has come indirectly, avoiding an immediate face to face combat, but the action has raised dust across many fronts.
Zainab’s move means consumers of carbonated drinks and other related non-alcoholic beverages will be forced to dig deeper into their pockets to purchase their favourite among the products on the basis of the introduction of a N10 excise duty per litre on all non-alcoholic and sugar-sweetened beverages by the federal government.
An excise duty, according to economic experts, is a government tax imposed on the production, licensing and sales of goods manufactured locally.
Justifying the new development during a public presentation of the 2022 Appropriation Act in Abuja, Ahmed explained that the excise duty is part of measures to shore up revenue and address the country’s low taxation.
She recalled that the new policy, which is in the Finance Act, was signed into law by President Muhammadu Buhari on December 31, 2021, noting that it would be used to raise revenues for health-related and other critical expenditures in line with the 2022 budget priorities.
The minister also stressed that the policy, apart from increasing government’s revenue, will curtail excessive consumption of sugar in beverages, which contributes to a number of health conditions, including diabetes and obesity.
Statistics gleaned from Euromonitor International, a global market research publisher, showed that Nigeria ranks the sixth highest soft drink consuming country globally and the highest in Africa, with over 40 million litres consumed yearly.
This, according to health practitioners, is bad news for the health sector as it has resulted in about four million Nigerians suffering from diabetes annually, a condition linked to excess sugar consumption notably contained in carbonated drinks and sweetened beverages.
Prior to the excise duty introduction, the National Action on Sugar Reduction (NASR), a coalition of non-governmental organisations, had brought to fore the health risks associated with Nigeria’s high sugary drinks and sugar-sweetened beverages consumption, urging the government to impose a 20 percent tax on the products to control consumption.
The group noted that sugar-sweetened beverages, also known as soft drinks, had contributed to the rising burden of non-communicable diseases (NCDs) in the country, including type II diabetes, stroke and heart diseases.
In a communique signed by Omei Bongos-Ikwue, the NASR representative, the group said the resultant harmful effects of sugary drinks consumption is a setback to economic productivity.
“In Nigeria, the cost of diabetes care amounts to $4.5 billion per annum. These expenses come to nearly N37,000 a month, more than half of an average Nigerian’s monthly earnings of N60,000. This also amounts to more than ten times the budgetary allocation for health per citizen,” the communique read.
According to the group, a fiscal intervention in the form of a tax on sugar-sweetened beverages would discourage excessive consumption of sugary drinks, promote healthy choices and provide much-needed revenue to subsidise diabetes treatment costs and control of other non-communicable diseases.
However, the Manufacturers Association of Nigeria (MAN), holds a contrary view in its reaction to the tax imposition on carbonated drinks and related beverages.
MAN argued that the move is a counter-productive approach that would eventually defeat the government’s revenue generation plan as it would lead to revenue loss for the government.
Explaining the effects of the tax in a recent report titled ‘Key Considerations Against Excise on Non-alcoholic Beverages’, MAN reckoned that the government is likely to generate N81 billion revenue from excise duty on carbonated drinks between 2022 and 2025. However, the association projected that the government would lose N197 billion within the same period due to a resultant reduction of other taxes, such as value added tax (VAT) and company income tax (CIT) from the manufacturers of carbonated drinks.
Dwelling further on the implication of the excise duty on the country’s economy, the report posited that it would lead to a N1.9 trillion loss in sales revenue for the beverage sub-sector of the food and beverage industry between 2022-2025, with simultaneous adverse effects on jobs and supply chain businesses.
Commenting on the new excise duty, Segun Ajayi-Kadir, director-general of the association, said it is a “rather unfortunate” plan, considering its potential overwhelming negative impact on the economy.
According to Ajayi-Kadir, it would affect the development of the beverage sub-sector, which has contributed significantly to the economy and taxes, despite the debilitating effects of naira devaluation, inadequacy of forex, and the COVID-19 pandemic.
“What is not realised by many is that excise begets high production costs which in turn adversely affect production levels and intimately results in dwindling profits.This will grossly impact the small and emerging business owners in the non-alcoholic beverage sector,” he said.
The MAN director general further noted that the government’s revenue aspirations might not be realised in the long run and will not be sufficient to compensate the resultant revenue losses in other taxes from the manufacturers and related stakeholders.
Ajayi-Kadir also said the excise duty would reduce production capacity or ability to purchase raw materials, cause manufacturers to struggle to meet investor commitments, and lead to a negative impact on manufacturers and supply chain, which could result in investors taking their investments to other countries.
Yomi Olugbenro,West Africa tax leader at Deloitte, a risk and financial advisory firm, noted the excise duty is far-fetched, given that in countries where the taxes are imposed, they are aimed at preventing certain health conditions and are more medically induced rather than generating tax revenue.
He noted that the solution to boosting the government’s revenue is not by introducing new streams of taxes but by strengthening existing taxes, taking a serious look at the social contract between the people and the government and addressing the trust deficit that remains between both parties..
Olugbenro acknowledged the fact that the government needs to raise more money to enhance functionality but argued that rather than introducing more taxes, there should be a lot more efficiency, probity, accountability on previous taxes paid by the citizens.
“When the office holders in government begin showing evidence of how much they are also contributing to the national purse, it will increase the interest and willingness of the public to pay taxes,” he added.
Meanwhile, the Food Beverage and Tobacco Association (FOBTOB) and the National Union of Food Beverage and Tobacco Employees (NUFBTE), two prominent unions in the food and beverages sector, have registered their displeasure over the 10 percent increase imposed on carbonated drinks, stating that it would have an adverse effect on the sector and also lead to immense job losses.
According to Jimoh Oyibo, President of FOBTOB, the new tax policy would lead to increase in production cost, reduction in production capacity of manufacturing firms, and negatively affect the purchasing power of the struggling populace.
“Government did not give a deep thought to the aftermath effect, we will not relax, we are likely going to protest or go on strike and show our displeasure to the supervising ministry, the Ministry of Labour and Employment,” he said.
Mike Olanrewaju, general secretary of NUFBTE, described the government’s action as counterproductive and tantamount to its insensitivity to the plight of the manufacturers who are presently finding it difficult to operate in the country.
Olanrewaju added that the move will cost nothing less than 2,000 to 3,000 direct job losses within a week as the companies would be forced to reduce production or forfeit production altogether.
On the way forward, the two unions said they are mobilising their organs’ meetings to take appropriate action on the government’s new decision.
The unions also pointed at the possibilities of protests and strike actions to voice their objection, with the support of the Nigeria Labour Congress (NLC) and Trade Union Congress (TUC).
“We are not going to keep quiet, the NLC is being carried along, the leadership of the union will ponder on it to know the next line of action,” Olanrewaju said.