Relief for Sweetened Beverage Manufacturers

Operators in the non-alcoholic, carbonated, and sweetened beverages wait a sense of relief for the temporary suspension of sugar tax, writes Dike Onwuamaeze

The news that the federal government is contemplating a temporary suspension of N10 excise duty on each litre of non-alcoholic, carbonated, and sweetened beverages is being received in the food and beverage circle as a welcome relieve. The tax was reintroduced on January 5, 2022, by ex-President Muhammadu Buhari to discourage excessive consumption of sugar beverages, which is perceived to contribute to diabetes, obesity and other health issues. This was in spite of the opposition that was mounted by the manufacturers of the non-alcoholic beverage who argued that the tax would not augur well with their business and would reduce taxes collected from them by government due to poor sales.

But last week, the Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, said that the federal government is considering a temporary suspension of the sugar tax for six months as part of the implementation of the federal government’s Economic Stabilisation Plan (ESP).

Edun gave out this piece of information when the National Action on Sugar Reduction (NASR), a coalition of non-governmental organisations, visited him in Abuja.   

He said: “This measure aims to help beverage companies navigate the current economic difficulties without going under.”  

The minister, however, emphasised that there are plans to reintroduce the tax once the economy stabilized. According to him, the intention is to support the beverage industry during this critical period, adding that the implementation of the sugar tax in the future would enhance public health and generate additional revenue for the government.

The minister also agreed with the principle behind the tax when he highlighted the dual pressures on beverage companies regarding job creation and poverty reduction, and the perceived negative health consequences of their products.

According to him, job creation by these companies was a positive outcome but the consumption of SSBs pose significant public health costs, adding that the government’s tax revenue from SSBs must be balanced against industry needs, including pricing and the cost of living.

He said that the arguments against the SSB tax to those made in the past against tobacco taxation, underscoring the importance of data-driven analysis in shaping public policy.  

“We support your need for revenue, but we must find a balance. The increase in foreign exchange rates is being passed on to consumers.

“While the official exchange rate was artificially pegged, products are often priced at the parallel market rate, meaning companies do not pass on the actual exchange rate to customers,” Edun said.

MAN Applaud Move

Responding to THISDAY’S inquiry on the intention to lift the sugar tax for six months, the Manufacturers Association of Nigeria (MAN) said in its “Comment on the Reported Suspension of N10 Sugar Tax on Beverage Manufacturers,” that it is a welcome development.

The Director General of MAN, Mr. Segun Ajayi-Kadir, said: “The federal   government’s reported contemplation of   suspending   the   N10   sugar   tax   on   beverage manufacturers is a welcome development for the industry.

“The initial proposal threatened to exacerbate the already burdensome tax landscape for manufacturers, who are struggling under a multitude of levies. These financial constraints stifle growth, limit investment, and ultimately hinder the expansion of domestic manufacturing, a crucial driver of national development.”

He added that MAN applauded this potential shift in policy and advocated for a more comprehensive approach that would prioritises a reduction and harmonisation of existing taxes.

He also argued that streamlining the tax system would provide much-needed relief to manufacturers. This, according to him, would involve the consolidation of the multiple levies into a single and simplified tax structure. “Such a system   would   not   only   reduce   administrative   burdens   but   also   minimise compliance costs, freeing up resources for manufacturers to reinvest in their businesses,” he said.

Ajayi-Kadir went on to advocate the establishment of a tiered tax system that could be implemented to offer exemption or lower rates for smaller businesses and those operating in priority   sectors of the economy. This would foster a more supportive environment for nascent industries and those deemed critical for national development.

NECA SEEK TOTAL REMOVAL

Speaking in the same vein, the Director General of Nigeria Employers’ Consultative Association, (NECA), Mr. Adewale-Smatt Oyerinde, said that the federal government to go the whole distant of removing the tax permanently because all the operators recorded losses in 2023.

Oyerinde noted that the federal government’s plan to suspend the sugar tax is intended to support operators in the beverage companies and enable them to deal with the current economic difficulties in the country.

He observed that the players in the SSBs sector have suffered enormous setback due to the excise duty imposed on their products.

He noted that the burden of the tax has increased cost of production and product prices, which resulted to poor patronage by households, sales and profit by the companies.

The director general of NECA observed that almost all SBBs companies made loss in the 2023 accounting period, including those that have always made profit.

He, therefore, “commended the federal government for the gesture,” but urged them “to withdraw the tax permanently rather than just a suspension for a mere six months.”

Similarly, the Chief Executive Officer of the Centre for the Promotion of Private Enterprises (CPPE), Dr. Muda Yususf, said that the decision of President Bola Ahmed Tinubu’s administration to suspend the sugar tax on beverage drinks is laudable. 

Yusuf said that the reality is that the beverage industry, like most manufacturing firms, is grappling with numerous headwinds already. 

“These include the soaring production costs, weak purchasing power, high interest rate, escalating energy cost, supply chain challenges and many more. The gesture of government is therefore positively responsive and should be commended,” he said.

Yusuf had argued two years ago that the introduction of the sugar tax would hurt the manufacturers of carbonated drinks and non-alcoholic beverage segments of the manufacturing sector.

The decision seemed to suggest that the policy makers are largely disconnected from the realities of manufacturing challenges in Nigeria, pointing out that “this class of investors has enough challenges already.

“They are grappling with high and escalating production costs, rising operating costs, depreciating exchange rate, illiquidity in the forex market, soaring cost of logistics,  multiple taxation,  and surging energy cost. 

“It is unfair to contemplate an additional tax on this struggling sector. There are implications as well for ability to retain existing jobs, let alone creating new ones.  In essence this tax proposition is a negation of the quest for job creation and poverty reduction. 

“Besides, the food, beverage and tobacco sectors have excellent record of backward integration with inherent multiplier effects on jobs and incomes. 

“CPPE strongly advise against the contemplation of an additional tax on this critical sector of our economy,” said two years ago.

In November 2021, the MAN released a report titled “Key Considerations Against Excise on Non-alcoholic Beverages.” The report reviewed the likely impact of excise on non-alcoholic beverages and represented a joint position of the economic impact of the proposed reintroduction and key considerations for government.

LOSING REVENUE

The report stated clearly that the government would lose more revenue overall if the excise is introduced.

“The government could lose up to N197 billion in VAT and CIT revenues occasioned by drop in industry performance. The beverage sub-sector of the food and beverage sector will lose up to N1.9 trillion in sales revenue between 2022 and 2025, indicating a 39.5 per cent loss due to imposition of the new taxes with concomitant impact on jobs and supply chain businesses.

“Total projected receipts is N81billion if excise tax is introduced on non-alcoholic beverages at N10 per litre– This excise gain does not compensate for potential revenue losses from CIT, VAT and TET,” it said.

The report also warned that the time was not ripe for the introduction of the sugar tax. “There is real concern that the industry cannot cope with persistent tax increases. There have been multiple tax increases in recent times –excise duty was increased on alcoholic beverages in 2018 and VAT increased in 2020. Manufacturers also grapple with other challenges such as forex restrictions and currency devaluation. The sector has members already making significant investments towards responsible practices. The sector has made notable efforts in educating the public and continues to invest in several CSR projects in Nigeria.

“Re-introducing excise would be counter-productive to the Federal Government’s Sugar Master Plan. The sugar industry would be hard hit when volumes plummet as a result of excise,” the report said.

It is still a wait and see game on when the proposed suspension of the sugar tax will come and whether the government would jettison the tax in its entirety.

For now, Edun has encouraged the coalition and advocacy groups to continue providing incisive studies and robust data to strengthen the case for the sugar tax.

Speaking on behalf of the coalition, the Co-chair of NASR, Mr. Bernard Enyia, said that the costs of insulin and diabetes care had doubled in the country.

Enyia, who is also the vice-president of the Diabetes Association of Nigeria, alleged that the consumption of SSBs is linked to various health issues, including obesity and dental problems.

He said that public health costs associated with these conditions are significant, impacting healthcare systems and reducing overall productivity.