• Thursday, November 30, 2023
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Soft drinks manufacturers raise prices to cope with N10/litre tax

Considering Nigeria’s soft drink sector at the verge of collapse

Three months into the implementation of the federal government’s N10-per-litre excise duty on all non-alcoholic, carbonated and sweetened beverages, manufacturers have deployed coping strategies, including price increases.

Despite the initial pushback against the policy contained in the 2021 Finance Act, the affected manufacturers have passed on the additional cost to consumers by increasing the prices of products and have also commenced remittances to the federal government. The policy kicked off on June 1, 2022.

Manufacturers affected by the sugar tax include Nigerian Bottling Company, Nigerian Breweries, Rite Foods Limited.

A market survey of soft drinks in the retail market shows that prices have increased by 33 percent or more over the last three months.

For example, 50cl PET Coke, Pepsi, Sprite, and others, which used to cost N150, are now sold for N200 while the 33cl Malt, which used to cost N200, is now sold for N250.

The retail market has seen an increased inflow of 35cl drinks from Rite Foods and Coca-Cola brands priced at N100 as cheaper alternatives for consumers.

Speaking on the impact and management of the sugar tax, an employee of the Nigeria Bottling Company who pleaded anonymity said the implementation of the sugar tax had affected the operations of the company marginally as the additional cost had been passed on to the consumer.

Giving an estimate of the additional cost, the source explained that the Coca-Cola brand has 12 bottles of 50cl in a case, which is six litres per case, when multiplied by N10 per litre, each case has an additional cost of N60.

The source said that on average, about 300 million cases are produced annually and about 25 million produced monthly. BusinessDay estimated that on the average, the company should remit N1.5 billion monthly (N60 multiplied by 20 million cases).

“To manage the cost, what we did was to increase the price and sensitise our customers on the sugar tax and the price increase; in addition to this, our 35cl is now in the retail market,” the employee said.

Efforts to speak with other manufacturers on the impact of this sugar tax were not successful, although many of them had increased prices to pass on the additional cost to consumers.

Rob Kleinjan, finance director at Nigerian Breweries, said during a media briefing in April that the company’s input cost and other expenses had continued to increase significantly, adding that this would cause an upward review in the price of its products.

“In addition, the N10 per litre excise duty, which the government wants to implement, is an indirect consumer tax; so going forward, it will be passed on to the consumers,” he said at the time.

Read also: Nigerian small businesses battle high overhead costs, tough environment

The federal government had in January slammed a N10/litre excise duty on all non-alcoholic, carbonated and sweetened beverages in line with the new ‘sugar tax’ introduced by the government in desperate efforts to raise revenues.

Zainab Ahmed, minister of finance, budget and national planning, who announced the policy, said then that apart from anticipated revenues, the tax sought to discourage excessive consumption of sugar in beverages, which she said contributed to debilitating diseases like diabetes, obesity, etc.

Timi Bomodi, national public relations officer of the Nigeria Customs Service, told BusinessDay in a telephone interview that the manufacturers affected by the sugar tax had been responsive in remittance but he declined comment on how much could have accrued to the government so far.

According to him, because it is a newly introduced tax, efforts are ongoing to ensure remittance is being done.

He said there had been a steady increase in the excise duty paid by manufacturers of sugary and carbonated drinks.

Bomodi said the payments were being made into the treasury account, adding that the automation process for payment would soon be completed.

“We are still in the process of automating remittance because it requires the introduction of a new infrastructure that was not in place before, which will align payments and make remittances easier, and we are almost at the final stage,” he said.

Similarly, an official from the Ministry of Finance, who does not want to be named, confirmed that the implementation of the sugar tax started on June 1 and is being remitted monthly in arrears of the previous months’ production.

According to him, there are some other aspects of the directive that need to be understood on what the regulation entails.

“Other than the circular released on the first of March 2022, the ministry thought it necessary to provide a regulation that clarifies everything around the sugar tax, which has been drafted and signed off by the minister of finance and is awaiting gazetting by the attorney general through the ministry of justice,” he said.

Olajide Anna, a soft drink retailer in a busy part of Area 1 in Abuja, said the price increase received various reactions from consumers, noting that some have shifted from carbonated sugary drinks to other brands like Malt, Nutri-Milk, or organic beverages like Tigernut.

“Some customers have continued to buy the drinks but they have complained that the quality has dropped despite the increment while some simply go for other types of drinks,” she said.

“The industry has adjusted to the additional cost, following a uniform price increase and this may not affect their sales because it is an industry-wide action and the demand for soft drinks is quite high in the country,” Abiola Gbemisola, analyst at FBNQuest, told BusinessDay.