Nigerian brewers, customers brace up for effects of new tax regime

The competitive landscape of the alcoholic beverage industry in Nigeria has had an undesired effect on the players of the industry in half-year 2018 and will affect the industry even more as they brace for the new tax regime.

With the dawn of a new tax regime, it is expected that the tax burden would be carried by the consumers but given the intense competition for market share, brewers may need to strategise to wade through the challenge.

In June, the federal government replaced the ad-valorem rate on alcoholic beverages with a fixed rate charge estimated based on volume. The tax regime will see consumption of Beer & Stout attracts N0.30 per centilitres (cl) in 2018 and an additional increase of the N0.30 per cl will spread over into 2019 and 2020 with charges per cl anticipated to settle at N0.35 per cl over the period.

Wine, on the other hand, would attract N1.25 per cl in 2018 and N1.50 per cl in 2019 and 2020, while Spirit would attract N1.50 per cl in 2018, with a planned increase to N1.75 per cl and N2.0 per cl in 2019 and 2020 respectively.

In H1 2018, the industry saw AB InBev makers of Trophy and Hero lager complete a new plant in Shagamu and introduce its flagship international premium beer, Budweiser, into the Nigeria market space, which already houses products from local brewing giants, Nigerian Breweries (NB) and Guinness Nigeria.

NB’s revenue took a hit in H1 2018, tumbling 5 percent from N181 billion to N173 billion amid volume weakness and a PAT drop to N18 billion, which represents a 22 percent decrease over the N24 billion recorded in the corresponding period in 2017.

The director’s of Nigerian Breweries in a filing statement to The Nigerian Stock Exchange acknowledged the effect of consumer purchasing power as the reason for the drop in revenue and sales. Given the H1 2018 results have not felt the effect of the ad-valorem rates; the company faces even further tests going forward.

However, GUINNESS recorded stronger revenue in its Q3 2018 result ended March 2017, the company’s revenue went higher 17.4 percent to N105.5bn despite increased sector competition.

An analyst suggested that the accounting period of Guinness Nigeria helped their numbers, but they are set to feel the full effect of the new tax regime, he said “It is apparent that Nigerian Breweries’ felt very little of the effect of the tax regime, while Guinness’ accounting period helped their result as it was published before June when the regime started, however, going forward into H2 2018, the implementation of the new excise duty on alcoholic beverages will dampen revenue growth.”