Fiscal Policy as Manufacturers’Burden

After a long drawn battle against further impositions of taxes of manufacturers in the food and beverage segment of Nigerian manufacturing sector, the federal government succeeded in imposing more taxes through the obnoxious 2023 Fiscal Policy Measures, writes Dike Onwuamaeze

For Nigerian manufacturers, there is no better description of the methods and manner the outgoing administration of President Muhammadu Buhari packaged and delivered the 2023 Fiscal Policy Measures other than intrigues, deception and treachery.

The policy, which was contained in a memo issued on April 20 will come into effect from June 1, 2023, a clear three days after the expiration of the tenure of Buhari’s administration.

The controversial and contentious 2023 fiscal policy measures imposed the following rates: a N10 per liter exercise duty on non-alcoholic beverages, fruit juice, energy drink; a 20 per cent as valorem tax and N75 per litre excise duty on beer and stout; 30 per cent ad valorem and N75 per litre excise on wine production in Nigeria as well as 30 per cent ad valorem and N150 per litre excise duty on spirit and other alcoholic beverages.

In addition, tax on tobacco industry was reviewed. The new tax is 30 per cent ad valorem and N8.20k per stick excise duty.

It should be noted that Ad valorem tax is based on the value of the product, which makes the impact even more injurious to industrialists.    

Other measures contained in the fiscal policy measure are 40 per cent import duty on vehicle, 42 per cent import duty on iron and steel products, single use plastic surcharge of 10 per cent under HS Code 3919.10.00.00 and 3919.90.00.00 as well as Headings – 39.20; 39.21 and 39.23 (for plastic containers, films and bags. , appears ill-timed   and   hasty   in   view   of   the   fact   that   

The introduction of these fiscal measures came to the members of the Manufacturers Association of Nigeria (MAN) as a betrayal of all the terms the association negotiated and agreed to with the federal government through the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed.

The MAN was so sure that it has sealed a favourable agreement with the government that it issued a press released on March 30, 2023, titled, “MAN Lauds Federal Government’s Decission to Halt the Proposed Increase in Excise Duty on Alcoholic, Non-Alcoholic Beverages and Tobacco and to allow the 2022-2024 Federal Government’s Roadmap to Run Its Full Course.”  

The Director General of MAN, Mr. Segun Ajayi-Kadir, said in the March 30 press release: “The palpable apprehension in the concerned sector necessitated another courtesy visit and presentation to the Honourable Minister of Finance, Budget and National Planning by a delegation of the Manufacturers Association of Nigeria. The delegation was led by the President of MAN, Mr. Francis Meshioye, and the outcomes allayed the fears of MAN.

“The honourable minister reassured the delegation of government’s commitment to the wellbeing of the manufacturing sector and the concerned sector in this instance.

“The association is gladdened by the assurances of the Honourable Minister, Mrs. Zainab Ahmed, that the 2023 Fiscal Policy Guidelines and the reconsideration of the Finance Act 2023 have been concluded and would be released immediately.

“In specific terms, she (Ahmed) assured that the guidelines would not include the proposed increase in excise duty on beer, wines and spirits, tobacco and non-alcoholic beverage in 2023, but rather allow the excise regime to run its full course from 2022 to 2024 as programmed in the roadmap by the federal government in 2022.

“This comes as a huge relief to our members across the federation and will signpost the administration’s support for the sustenance of manufacturing in Nigeria on this score.

“This move will reassure members of the administration’s respect for stakeholder’s engagement and the usefulness of public-private sector dialogue.”

But MAN rejoiced too soon. Barely three weeks after, the federal government dealt a devastating blow on the manufacturers by hitting them below the belt and straight to their groins when it jettisoned the 2022-2024 roadmap and opted for the deadly 2023 Fiscal Policy Measures that increased the rate of taxation imposed on the non-alcoholic beverages and tobacco products.

In its own reaction, the MAN said that it has carefully studied the newly released Fiscal Policy Measures for 2023 and noted the increases in excise tax for 2023 and 2024 as provisioned in the said 2023 Fiscal policy came to it as a surprise. The surprise stemmed from the assurances MAN received from the minister of Finance, Budget and National Planning on March   29,  2023,   that the  2023 proposals on additional excise tax increases have been stepped down until further consultations on the 2023 finance bill.  

Ajayi-Kadir said: “The   release   of   the   2023   Fiscal   Policy   Measures,   just   over   one   month   to   its   expected implementation date and the end of the current administration, sends negative signals to the business   community   locally   and  internationally   with   implications   for existing   and   potential investors.  

“It is therefore alarming and concerning that the implementation of the 2022 to 2024 approved excise roadmap, as contained in the 2022 Fiscal Policy (which commenced on 1st June 2022) has unfortunately not even been implemented for up to one year, before government decided to ‘shift the goal post’.

“This was done without any consultation on or assessment of the impact of the huge increases.  

MAN also declared the introduction of plastic tax hasty because government,   through   the   Federal   Ministry   of Environment, is currently working towards instituting a plastic cycle waste management policy with technical assistance from the United Nations Industrial Organisation (UNIDO) along with support from the Japanese government.

It appealed to government that the proposed increase in the recently released 2023 guidelines i.e., on beer, wines and spirits, tobacco, has the potential to trigger unprecedented distortions in the affected industries as well as the entire manufacturing sector.

“The policy is capable of producing negative effect on investments with a huge consequence on job retention in these industries. 

“We, therefore strongly recommend that government should maintain the status quo regarding the already government-approved excise duty increases on these items in the three-year roadmap as contained in the 2022 Fiscal Policy Measures. This was approved by Mr. President and implementation commenced on 1st June 2022. The industry cannot afford any further increases at these extremely challenging times.”

Similarly, the Organised Private Sector of Nigeria (OPSN), that comprised of the MAN, the Nigerian Association of Chamber of Commerce, Industry, Mines and Agriculture (NACCIMA), the Nigeria Employers’ Consultative Association (NECA), the Nigerian Association of Small Scale Industries (NASSI), and the Nigerian Association of Small and Medium Enterprises (NASME), has also strongly expressed its opposition to the recently announced increase in excise rates as contained in the circular dated April 20, 2023, and was signed by the Honourable Minister of Finance, Budget and National Planning.

The OPSN said: “The increase is unwarranted, ill-timed and inimical to the Nigerian economy and the manufacturing sector in particular, and the OPSN calls for its immediate reversal to protect the affected industries and the dependent businesses in their extended value chain from imminent collapse with calamitous consequences for the economy.”

The Director General of NACCIMA, Mr. Sola Obadimu, told THISDAY that NACCIMA is indeed worried by the recent proposal. “In our last press briefing, we highlighted the negative impact of the 2022 Finance Bill which attempts to add more financial burdens on the OPSN. We expressed our fears that any further tax increase on businesses may lead to the shutdown of many SMEs and worsen the unemployment crisis in the country.

Speaking in the same vein, the Director/CEO of Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said that some provisions in the 2023 Fiscal Policy Measures of the federal government would significantly hurt the economy and worsen the de-industrialisation of the Nigerian economy.  

Yusuf stated that it is double whammy for economic players to contend with a regime of high import duty and prohibitive tax rates amid a depreciating currency.

“Fiscal policy measures,” according to him, “must seek to ensure a good balance between objectives of revenue generation, boosting domestic production, enhancing the welfare of citizens, promoting economic growth, deepening economic inclusion, facilitating job creation and recognising societal ethos, beliefs and values.”   

He contended that the policy measures failed to reckon with the multifarious challenges which industry operators are currently grappling with, some of which include weak and declining consumer purchasing power, Naira exchange rate depreciation, high energy cost, multiple taxes and levies already being imposed on the industry players.

He also highlighted potential risk to jobs in the sector and its extended value chain, including millions of MSMEs in its distribution and marketing chain and downside risk to manufacturing sector outlook in the Nigerian economy.

According to him, “millions of farmers supplying local inputs such as grains to the sector may lose their livelihoods.”  

TAX ON DOMESTIC WINE PRODUCERS

The local wine industry is already under tremendous pressure from imported wines, which are largely smuggled. With a 30 per cent ad valorem tax and a specific tax of N75/litre, most wine industries operating in the country may have to shut down.  It is ironic that rather than support local wine producers to be more competitive and create more jobs, the government has opted to impose even higher taxes on them.

“The immediate risk is that the domestic wine market would be taken over by imported, and mostly, smuggled wine.  Ultimately, the Nigerian economy, domestic investors in the sector and the employees of these firms would be the victims of this policy.  The government would also suffer revenue loses because smugglers do not pay tax as they operate in the underground economy.”

THISDAY investigation revealed that manufacturers of non-alcoholic beverages are recording losses due to unsold inventories, which are destroyed after their shelve life.