• Tuesday, March 05, 2024
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Beverages, Tobacco most hit by 2023 excise duty increase

Customs should be responsible for trade facilitation, not revenue generation – Kale

The recent 2023 excise duty increase may have more impact on the beverages, tobacco and plastics sectors but limited effects on telecommunication service, according to Yemi Kale.

Yemi Kale, partner and chief economist, KPMG Nigeria tweeted that “The 2023 Fiscal Policy Measures may have more profound impacts on the beverages, tobacco and plastics sectors.

“As well as on car importation but may have limited effects on the earnings of telecommunication service providers as they will find it relatively easier to pass on these costs to consumers,” he said.

He, however, noted that this may have negative effects on other sectors as consumers may retain telecoms expenditure and prioritise consumption away from alcoholic beverages, tobacco, wines and spirits and plastics.

Kale said sectors that are price elastic, have close substitutes and have a well-established ‘black-market’ that can ensure continuous supply and evade taxes.

He said the timing of the 2023 Fiscal Policy Measures may not be effective given the recovery status of the economy and current hyperinflation.

“Further price rises may squeeze consumers demand and worsen already declining business margins such that the expected revenue expected by the government from the new duty may not be realised,” Kale said.

The Nigerian Government has implemented new taxes on beer, imported vehicles, and single-use plastics.

The excise duty on beer and stout will start at N75 per litre in 2023 and will be raised to N100 per litre in 2024.

While the Green Tax on Single Use Plastics (SUPs) including plastic containers and bags will be charged at a rate of ten percent.

Additionally, a five percent excise duty will be imposed on mobile telephone services, fixed telephone, and internet services.

Imported wine will also have the same excise rate as beer, vehicles with two-litre engines will be subject to a two percent Import Adjustment Tax.

Additionally, vehicles with four-litre engines or more will have a four percent Import adjustment Taxes.

Read also: Excise duty hike will work against Nigeria’s industrialisation bid – Yusuf warns

KPMG said in its flashnotes issue 6 published on Thursday that while various reasons have been canvassed by the government for these changes, including a need to fulfil its commitment to climate change adaptation and the mitigation of environmental degradation.

“As well, to discourage excessive consumption of sugar, tobacco and alcohol which contributes to several health conditions, it is evident that the more important priority is to generate revenue to plug the big and widening hole in its deficit financing,” KPMG Nigeria said.

KPMG Nigeria cited Kenya as a case study, saying “In 2017, Kenya made it illegal to use single-use plastic bags, and in June 2020, they extended the ban to include single-use plastics including bottle waters, and disposable plates in national parks, forests, and relaxation areas.

“As of 2021, the excise duty for beer, including non-alcoholic beverages with an alcoholic strength of 6 percent or less, has increased from 116.08 shillings per litre to 121.85 shillings per litre.”

While also citing South Africa as a case study, KPMG Nigeria said that to regulate the import of used vehicles into South Africa, the government put in place strict measures to control the issuance of legal import permits.

“These permits are only granted to a limited number of vehicles that meet certain criteria, such as racing cars, vintage and collector’s passenger vehicles, vehicles adapted for persons with disabilities,” it said.

“Vehicles inherited by South African citizens and nationals, and vehicles driven by immigrants and returning South African residents and nationals.

“This is to make sure that local automobile industries are not threatened by foreign vehicle manufacturers and that the country can obtain revenue from the industry,” KPMG Nigeria said.

KPMG Nigeria noted that while these policies may have been enacted, it may seem as though, these policies did not entirely succeed as there might be issues with public awareness and resources to sustain these policies.