• Monday, July 15, 2024
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Another Sugar Tax will slow down economic recovery

Sugar tax, FX scarcity hit food businesses in Nigeria

The pending proposal to impose yet another sugar tax has sparked intense debates, threatening to hinder the delicate balance needed for sustainable economic revival. In the face of a fragile post-pandemic economic landscape, the implications of this potential tax levy loom large, inviting a closer scrutiny of its consequences on both the public health agenda and the broader economic recovery journey.

At the heart of the matter lies a proposal to augment the existing 10 Naira per litre tax on sugar-sweetened beverages. The Federal Government recently expressed its readiness to raise tax on sugar-sweetened beverages (SSB) from the current rate of 10 percent to 20 percent.

Read also: Sugar tax, FX scarcity hit food businesses in Nigeria

The SSB tax, embedded in the Finance Act of 2021, levies a N10 tax on each litre of all non-alcoholic and sugar-sweetened carbonated drinks, as part of efforts to discourage excessive consumption of sugar, which it claims contributes to the burden of non-communicable diseases such as obesity, diabetes, among others.

As the collective voice of industry stakeholders, the Manufacturing Association of Nigeria (MAN) highlights the tangible repercussions of such a decision. MAN posited that on the surface, this proposal may appear as a straightforward measure to manage sugar consumption. However, beneath the surface, a complex economic conundrum unfolds.

The primary sector set to be affected by this proposed tax hike is the Food and Beverage industry —a significant contributor to Nigeria’s economic landscape. Local industries heavily depend on domestically sourced sugar. The inevitable outcome of higher taxes on sugar-sweetened beverages is the likely surge in the prices of these products. In a nation where consumers are particularly price-sensitive, this price increase is poised to lead to a reduction in demand for these goods.

Read also: New sugar tax: A wrong step in the right direction

Yet, the consequences of this demand reduction are not to be taken lightly. It could potentially translate into a dwindling revenue stream for the government at the long run, coupled with the very real threat of job losses within the Food and Beverage sector, hence worsening the current high unemployment rate being ravaging the country. Moreover, the price hike may inadvertently prod consumers towards the consumption of unregulated and illicit sugar-sweetened products, further complicating the issues of public health and regulation which the government initially intends to check.

Recognizing the vital role of the sugar industry and the need to reduce Nigeria’s reliance on sugar imports, the government in 2012, made an audacious move to boost local sugar production. This involved the strengthening of the existing sugar plants, establishing new ones, and supporting sugarcane farmers with credit, supplies, and better infrastructure.

Read also: Soft drink prices up 33% on sugar tax

In line with this, the National Sugar Development Council (NSDC) (the main focal agency responsible for the regulation of all activities in the sugar sub-sector ranging from production, marketing, importation and enforcement of relevant industry standards in collaboration with relevant government agencies), crafted a strategic plan known as the Nigeria Sugar Master Plan (NSMP) with the aim of achieving self-sufficiency in sugar production within a decade. The NSMP received approval from the Federal Government in September 2012, and its implementation commenced on January 1, 2013.

The Nigerian Sugar Master Plan, a comprehensive ten-year roadmap policy, concealed a grand vision — to resurrect Nigeria’s once-thriving sugar sub-sector and elevate the nation to the esteemed status of a leading sugar producer in Africa.

The government’s endorsement of the NSMP and its adoption as the guiding framework for sugar sector development underscored its commitment to leveraging agriculture and industrial manufacturing to diversify the nation’s economy and revenue streams. This initiative was poised to create significant employment opportunities for the citizens, marking a pivotal step in the nation’s economic and agricultural transformation.

Key to this initiative were three Nigeria’s biggest industrial conglomerates—Dangote, Flour Mills, and BUA—enlisted as anchor players for the initial decade. Guiding this monumental effort to fortify local sugar production was the National Sugar Development Council, acting as the pivotal policy platform.

If the Federal Government goes ahead to increase the sugar tax, it’s not just the Food and Beverage sector that would find itself on the cliff of potential disruption. The local sugar industry, a linchpin of the NSMP’s ambitions, stands under the shadow of an uncertain future. The disruption in demand dynamics, driven by the proposed tax increase, could severely impede the progress made towards achieving the local sugar sufficiency targets outlined by the NSMP. The looming specter of job losses within this sector casts a cloud over the lofty goals envisioned by the NSMP.

This brings us to a fundamental question: If the government is genuinely committed to realizing self-sufficiency and fortifying the local sugar industry through the NSMP, then why simultaneously impose a tax on sugar consumption that has the potential to stifle the very industry it seeks to promote? MAN asserts that there should be a more harmonious and balanced approach, one that promotes local sugar production while ensuring economic stability and job security.

The delicate balancing act between enhancing local sugar supply and regulating sugar consumption is a challenge that demands careful consideration. MAN’s position underscores the need for a comprehensive strategy that prioritizes economic growth, sustainability, and the health of the sugar industry, all without unintentionally suppressing overall economic progress.

Read also: How the new sugar tax will hurt Nigerians

In the words of Segun Ajayi-Kadir, the Director-General Manufacturers Association of Nigeria: “As the Manufacturers Association of Nigeria, we wholeheartedly endorse the Nigeria Sugar Master Plan as a pivotal driver of economic revitalisation and self-sufficiency in the sugar sub-sector. However, the recent proposal to increase the tax on sugar-sweetened beverages poses a substantial challenge to our collective vision. It casts doubts on the necessity of a balanced approach that encourages local sugar production while securing our nation’s economic stability and job security. We believe that the delicate balancing act between these objectives necessitates thoughtful consideration and a more harmonious strategy to achieve our shared goals.”

As the argument rages and the nation charts its course towards a more sustainable future for its sugar sub-sector, policymakers are urged to heed the concerns and insights raised by industry stakeholders. The ultimate goal is to find a harmonious equilibrium that not only resurrects the sugar industry but also nurtures a thriving, competitive, and robust economic landscape, thereby edging Nigeria closer to its vision of becoming a leading sugar producer in Africa.

Uwadiegwu, a commentator on national issues, writes from Lagos