Federal Government increases excise tax on alcohol and cigarettes

In a press statement released today, Minister of Finance Kemi Adeosun has announced an increase in the excise duty rates for alcoholic beverages and tobacco with effect from June 4, 2018. Manufacturers have thus being given a three-month grace period. The increase in taxes will be phased from now till 2020. An excise duty tax is a tax charged on goods produced within a country.

Reasons behind the increase

Adeosun hinged the increase on the need to increase government revenue and combat the risks associated with alcohol and cigarette abuse.
The new excise duty regimes, according to her are in line with the Economic Community of West African States (ECOWAS) directive on the harmonisation of member-states’ legislation on excise duties, as well as recommendations by the International Monetary Fund (IMF) and World Bank.

The new taxes

A stick cigarette will attract a ₦1 specific rate per stick (₦20 per pack of 20 sticks) in 2018, a ₦2 specific rate per stick (₦40 per pack of 20 sticks) in 2019 and ₦2.90k specific rate per stick (₦58 per pack of 20 sticks) in 2020.The current ad valorem tax of 20% on cigarettes will, however, remain in place.

Beer & Stout would attract ₦0.30 per centilitre (Cl) in 2018 and ₦0.35 per Cl each in 2019 and 2020.

Wines would attract ₦1.25 per Cl in 2018 and ₦1.50 per Cl each in 2019 and 2020, while ₦1.50 per Cl was approved for Spirits in 2018, ₦1.75 per Cl in 2019 and ₦2.00 per Cl in 2020.The ad valorem tax on alcoholic beverages has however been removed.

What the data says

Data from the National Bureau of Statistics reveal Nigeria’s beverage and tobacco imports were N64.9 billion in 2017 up from N49 billion in 2016. Nigeria’s tobacco export was N8.9 billion in the 4th quarter of 2017 alone. However, within Africa, Nigeria’s mainly exports tobacco to Ivory Coast, Benin Republic and Burkina Faso. Total African exports were about N2.3 billion.

Why it matters?

Nigeria is considered a manufacturing hub for tobacco and alcoholic products in Africa. Most of the newly setup tobacco plants are strategically located in Nigeria to help facilitate exports to smaller neighbouring African countries. Critics suggest this new tax could affect future investments in the tobacco sector. Nairametrics intel suggests about 21 billion sticks of cigarettes are produced annually in Nigeria.