The Federal Government of Nigeria is set to embark on a downward review of the 2018 excise duties imposed on products made by brewing companies in Nigeria.
Basically, the extant tax laws were proposed by the former Minister for finance, Kemi Adesoun, to boost non-oil revenue amid declining income from the oil industry.
It has been argued that incremental rises in these products (alcohol and tobacco) somewhat aligns with global best practices, because most Governments around the world generally tax alcoholic drinks and tobacco for the dual purpose of revenue generation and discouraging the harmful effects of such products.
However, for a recovering economy like Nigeria, keeping factories running and providing jobs are as important as plugging the revenue hole.
Main Alcohol-Beverage companies are struggling for sales
According to the report, the main alcoholic beverage producers in Nigeria which include Anheuser-Busch InBev SA, Heineken BV and Diageo Plc have continued to struggle to improve increase sales due to the contraction witnessed in the economy since 2016.
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FG now rethinking earlier policy?
According to the email response to questions received from Paul Abechi, the spoke person for the Finance Minister, Zainab Ahmed, the difficulties witnessed by the alcoholic beverage companies are forcing the government to rethink the taxes earlier imposed.
“Following continued consultation by the government, it has been decided and approved that the excise duties on wines and spirit should be reviewed.
“The process has been set in motion through the relevant departments and inter-ministerial committees and it will soon resolve the matter in a mutually benefiting way.”
About taxes on tobacco and alcoholic drinks
The excise duty for alcoholic beverages and tobacco was approved by President Buhari and took effect on June 4th, 2018. According to the former Minister for Finance, Kemi Adeosun, the excise duty rates were expected to spread over a three- year period from 2018 to 2020 in order to moderate the impact on prices of the product.
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The excise duty is a combination of the existing ad-valorem rate, with each stick of cigarette attracting on naira specific rate stick. Earlier, the projection was that by the year 2020, tobacco should attract N2.90 specific rate per stick or N58 pack of 20 sticks.
Similarly, under the regime, beer and stout are to attract 0.30k per centilitre (Cl) in 2018 and 0.35k per Cl each in 2019 and 2020.
Wines are to also attract N1.25k per Cl in 2018 and N1.50k per Cl each in 2019 and 2020, while N1.50k per Cl was approved for spirits in 2018, N1.75k per Cl in 2019 and N2 per Cl in 2020.
Following the upward review of the taxes, the Director-General, Consumer Protection Council (CPC), Babatunde Irukera, reportedly said the decision to increase the excise duty on these commodities was consistent with prevailing global practices.
Also, Akinbode Oluwafemi, the Deputy Executive Director, Environmental Rights Action of Earth Nigeria, described the decision to increase excise duty on tobacco as praise-worthy.
The taxes are hitting hard on brewing companies’ revenue
The increase in brewing products is reportedly having a toll on the industry’s biggest players’ revenues.
For instance, report shows that Heineken’s local unit, Nigerian Breweries Plc, reported 2018 net income that fell 41 percent from the previous year to 19.4 billion naira ($54 million) due to “increased excise duty rates” as well as “a challenging operating environment”.
Also, International Breweries Plc, the local unit of AB InBev, declared a loss of N7bn for the nine months through September, citing rising costs that included taxes. Similarly, Diageo-owned Guinness Nigeria Plc saw its growth blunted by the higher levies.
FG makes U-turn, to embark on a downward review of taxes
The Senate intervention in the excise duty hikes on alcoholic beverages and tobacco products appeared to have finally produced results. The legislature earlier passed a resolution in 2018 calling on the government to suspend the implementation of the new excise rates to give more time to sensitise all stakeholders.
The Senate had suggested increment to no more than 50 per cent, while a larger chunk of the taxes should be shifted on imported alcoholic beverages and tobacco.
According to the Budget and Planning Minister, Udo Udoma,
“The companies don’t need additional tax at a time the economy is coming out of recession and inflation is still high,”
Similarly, the chief executive of Lagos-based Highcap Securities, David Adobri, reportedly said in a phone interview;
“A downward adjustment or abolition of the tax is needed to enable them to remain in business and create jobs.”