…MAN warned that it would be illusory for federal government to persist on implementing the 2023 FPM on the hope that it would garner more revenue
The Manufacturers Association of Nigeria (MAN), has urged the Federal Government to reverse the 2023 Fiscal Policy Measures (FPMs) scheduled to come into effect on June 1, 2023.
MAN ‘s President, Francis Meshioye made this call on Tuesday in Lagos, at a press conference by MAN on the “Increase in Excise Rates for Alcoholic Beverages and Tobacco, as contained in the 2023 FPMs dated 20th April 2023.”
He pointed out that the rate of the excise increase was exponential and excessively burdensome as the FPM increased the excise for beer products by about 200 per cent, while the tobacco industry was being taxed five times more than average the average for other industries.
According to him, the increases on excise duties on beer and tobacco as contained in the FPM were, “an increase on an increase,” since there was already an existing approved increase for 2023.
He said: “The rate of increase is exceptionally excessive and not consistent with best practice globally. For instance, the excise for beer was effectively increased by about 200 per cent, translating to a tripling of excise on the product.
“This is coming against the backdrop of the huge tax burden on the tobacco and beverage sectors, with the tobacco industry being taxed five times more than the average for other industries.”
The president of MAN based his argument on the claim that it was not the appropriate time to effect the increases because the manufacturing sector was in acute recession and proceeds from sales are no longer sustaining business’ overheads and operating expenses.
He added that the acute recession was constraining manufacturers to scale down their operations which would result in factory closures, job losses, decline in exports and much more.
He said: “The increase is coming at a time when the manufacturing sector is immersed in unprecedented crisis and an acute recession, due to extraordinary challenges, namely: sustained scarcity of naira (which has led to a crash in consumer purchases); limited access to foreign exchange (which has led industry to purchase foreign exchange from the parallel market, thereby increasing costs); record inflation (which further drive-up cost of operation and prices of products) and a struggling economy.
“These extraordinary challenges have led to a massive decline of -169 per cent in profit before tax for the brewing sector in Q1 2023. Industry turnover for non-alcoholic beverages and tobacco declined by -15 per cent, while gross profit and profit before tax declined by -31 per cent and -96 per cent within the same period, respectively.”
He went further to state that, “the Nigerian manufacturing sector recorded a 36 per cent downturn in profit margins from 2021 to 2022 and over 400 per cent increase in energy costs, further constraining growth of the sector.
“In addition, the tobacco sector has actively begun to reduce its export production from Nigeria as it has over N39 billion trapped in Export Expansion Grant (EEG) incentive not yet released to it by the federal government to manage its operations. Thus, this is not the time to impose additional increases in excise.”
Meshioye argued that the excise increase was a direct attack on Foreign Direct Investment (FDI) into Nigeria, which had been tumbling for three years now as the National Bureau of Statistics’ data has indicated that FDI into Nigeria fell by 33 per cent in 2022 and would continue in this trajectory should the excise increase be implemented as planned in June 2023.
“It is important to note the negative decline in 2022, with the biggest decline since the implementation of the 2022 roadmap. The World Bank noted a 59 per cent fall in FDI over the last 11 years with an FDI depreciation from $5.97 billion in 2010 to $2.45 billion in 2021,” he said.
The manufacturers association, therefore, plainly told the federal government to “suspend the 2023 FPM on excise duty and retain the 2022 -2024 excise duty roadmap as approved in the 2022 FPM, to foster stability in the affected sectors and their value chain, in the interest of the national economy;
“Reverse the tax on Single Use Plastics and engage with relevant stakeholders to facilitate ongoing initiatives, which have a better prospect of achieving the desired environmental objectives. A good example of this is the Food & Beverage Recycling Alliance, approved by the federal government; and
“Consider, with input from the sector and other critical stakeholders, alternative measures to achieve revenue and other objectives of the government in a sustainable manner.”
The president of MAN warned that it would be illusory for federal government to persist on implementing the 2023 FPM on the hope that it would garner more revenue, adding that the measures would spike illicit trade in tobacco products its current levels of 15 per cent to undesirable levels of above 50 per cent of the sector that government would receive no revenue from.
“The decline in profitability of the industry will result in a decline in the industry’s total tax contribution to the government, because companies’ income tax (CIT), value added tax (VAT) and education tax are directly tied to the performance and profitability of the company.
“In Q1 2023, while tobacco manufacturer’s contribution to excise grew by 7.0 per cent, its VAT contribution dropped by -36 per cent compared to the same period in 2022,” Meshioye said.
He further argued that the manufacturing sector’s value chain would be severely impacted as a crash in sale volumes and consequent cuts in production would severely impact these businesses in the value chain, which will have a multiplier effect on the national economy.
“For instance, supplier transactions in the sector declined by over N260 billion by the end of 2022, when compared to 2021.
“The total excise derivable from the excisable sector is insignificant when compared to Nigeria’s revenue needs. The revenue need of the government has been mooted as a reason for the excise increase. However, the total excise receivable from the sector is insignificant when compared to Nigeria’s revenue needs. The total excise received in 2022 was about N60billion,” he said.
The leaders of firms operating in the breweries and tobacco sectors also shared their views on the impending increase in excise duties on their line of manufacturing,
According to Ighodalo of NB Plc observed that the purchasing power of Nigerian consumers would be worsened by the introduction of the excise duty.
He said: “People do not have consumptive capacity so they cannot purchase, and when people cannot purchase what we have produced cannot sell and when you cannot sell then you cannot keep people in employment.
“The whole economy is in serious trouble if we do not look at this thing from a careful econometric perspective. I think what government needs to do is to sit down with its economists and look at the tipping points and ask when does this increase in excise duty lead to much lower taxes from VAT, education tax, CIT. But government has not done the arithmetic.
“I think that we all need to do a bit more serious thinking. If it is revenue, it should do it in a way that it will get the revenue. It is not by trying to destroy the productive sector of the economy that you build an economy. So, government needs to think about this. If the administration going out won’t do it the one coming in should look at it within its first one week.”
In the same vein, Ajukwu of International Breweries noted that what has happened over the years is that Nigerians have failed to interrogate the historical issues that lead to industrial sector’s disappearance as seen in the tyre and textile sub-sectors.
Similarly, Musunga of Guinness Nigeria stated that the increase on affected excise duty is astronomical as, “we are talking about 200 to 300 per cent increases. That level of taxation is going to hurt consumers at the lower income bracket that may not afford N1,000 to have a bottle of beer. The government will lose on other lines of taxes because we will not be able to pay CIT.”
He added that the fiscal policy would open market for illicit manufacturers of spirits.
In his own contribution, Al-Bahrani of BATCO, also expected “increase in illicit trade to rise from the present 15 per cent to 30 per cent with the increase in excise duty, and this is revenue that government will not be able to tax.”
The conference was attended by the Managing Director Nigeria and Area Director West & Central Africa at British American Tobacco Nigeria (BATCO) , Mr. Yarub Al-Bahrani; the Chairman of Nigeria Breweries Plc, Mr. Asue Ighodalo; the Managing Director/CEO of Nigeria Breweries Plc, Mr. Hans Essaadi; the Chief Executive Officer of Guinness Nigeria Plc, Mr. John Musunga and Non-Executive Director of International Breweries Plc, Mr. Michael Onochie Ajukwu, amongst others captains of industries.
