The Manufacturers Association of Nigeria (MAN) has carefully studied the newly released Fiscal Policy Measures for 2023 by the Federal Ministry of Finance, Budget and National Planning, following the approval by President Muhammadu Buhari.
The increases in excise tax for 2023 and 2024 as provisioned in the said 2023 Fiscal policy, came as a surprise to us because, as a major stakeholder, MAN had actively participated in the deliberations on the proposal and presented various positions from its members across all sectors, especially those directly impacted by the proposed measures.
What are the Issues?
From the meeting held with the Honourable Minister of Finance, Budget and National Planning on the 29th of March 2023, MAN representatives were informed that the 2023 proposals on additional Excise tax increases were being stepped down until further consultations on the 2023 Finance Bill. Additionally, Nigeria Customs Service was notified by the Federal Ministry of Finance vide Memo Ref. No. F. 17417/351 of 15th February 2023 that the existing Fiscal Policy Measures for 2022 as they relate to Alcoholic Beverages and Tobacco Products will take effect from 1st June 2023 and 1st June 2024 as approved in the 2022 Fiscal Policy Measures roadmap for 2022 to 2024.
Based on the above, MAN members had finalized their annual strategies and projections, while its exporting members had concluded pricing negotiations for orders to the end of fiscal period, on the strength of the agreed excise roadmap and recent assurance from the fiscal authority.
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 worrisome that the current situation is indicative of inconsistency in Government policy, given that industries that are affected by excise tax administration, already made 3-year strategic plans based on the agreed calendar as scheduled in the roadmap, including domestic and export sales prices, revenue and volume projections, tax burden calculations, etc. This, in our opinion, may create credibility issues for the country with existing and potential investors, impacting Foreign Direct Investments (FDI) and the country’s Ease of Doing Business index among other implications.
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, which in some cases are up to 50% on ad valorem and 75% on specific duty rates, over and above the already approved high increases of up to 50% and 45% respectively. Ironically, based on data from our members, Government is unlikely to earn more revenue from further excise increases due to significant decline in sales by companies in the sector, yet the new policy is likely to fuel illicit trade, industry recession, capacity underutilization, layoffs, etc. The unilateral action by the Government despite the complaint and persuasion by stakeholders for the fiscal authority to consider the consequence on the industries, businesses and the economy as a whole is quite unfortunate.
The Implications of the Increase in Excise Duty for 2023
We would like to put on record that the real impact on our members in the industries under excise regime from the 2022 fiscal policy has been negative and this has created:
- reduced production volumes with its attendant result on downward trend in capacity utilization;
- increased illicit trade in some of the affected products;
- erosion of members’ market share and revenue, especially following continued devaluation of the Naira against major currencies,
- inflation and increased security challenges faced around the country;
- freeze on employment and redundancies in the manufacturing industry;
- squeezed margins as our members are unable to pass additional costs to consumers by way of higher prices given their eroded income and dwindling purchasing power.
Apart from the above challenges faced in the business environment, manufacturers also have to contend with currency devaluation and increasing inflation resulting in higher cost of production as our members have little to no access to foreign exchange at the official window and have to resort to the parallel market at the higher cost of about N740 to US$1.00.
All these are without regard to the industry’s contribution to the Nigerian economy in the way of significant taxes being paid (Excise, Corporate Income Tax, Value Added Tax – VAT, etc); export revenue in foreign currency; employment of thousands of Nigerians by the industry directly and indirectly including supply chain partners in the SME sector as well as Corporate Social Responsibility (CSR) to the local communities and other stakeholders nationwide.
We commend the Federal Government on some of the approvals as provided for under the Supplementary Protection Measures (SPM) on Annex I, II and III of the 2023 Fiscal Policy guidelines, which is in support of MAN agenda of Resource-based Industrialization. We however request that in addition to the issue of Excise tax increase, the following items should be reconsidered:
Green surcharge – Import Adjustment Tax (IAT) on motor vehicle (Chapter 87)
While we support and respect government’s opinion and measures aimed at addressing climate change and Nigeria’s commitment to net zero emission, it would have been better if we exercise some level of strategic caution and allow for a period of realistic transition to clean energy. This is considering the fact that most of our members engage logistics companies, majority of whom are in the Small and Medium-scale Enterprise (SMEs) cadre, who would need some time to migrate to green fuel and who lack the financial capacity to purchase electric vehicles. Anything short of this will increase the input cost of products culminating in un-competitiveness, as well as eliminating many SMEs in the logistics downstream of the manufacturing sector.
Single use plastic surcharge of 10%
The surcharge of 10% on Single Use Plastic under HS Code 3919.10.00.00 and 3919.90.00.00 as well as Headings – 39.20; 39.21 and 39.23 (Plastic Containers, Films and Bags), appears ill-timed and hasty in view of the fact that 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.
The project is to institute a long-term solution to manage the menace of plastic wastes and assist the affected industries to retrofit, thereby reaching the threshold of the United Nations goal of green environment as being espoused by the series of the UN organized Conference of Parties (COP).
It is therefore necessary that this process should be allowed to reach its conclusive end before other measures such as provisioned in the 2023 Fiscal policy guidelines are pronounced by Government.
We have earlier noted and forwarded our position on the Excise duty tax to the Government while it was being proposed in the 2023 Fiscal Policy Guidelines. We are again emphasising the fact 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 3-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.
Segun Ajayi-Kadir, mni
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