New sugar tax: A wrong step in the right direction

Nobody likes taxes except the government. Even economists submit that taxes are anti-welfare since they are deductions from producers and consumers’ hard-earned incomes.

However, the government uses taxes to generate revenue to finance the fiscal programme for the country. Hence, in a standard environment, while taxes may have short term discomforting effect on producers and consumers, the long-run impact is usually beneficial to all since the government utilises the tax revenue to provide public goods and services. Conditional cash transfers to the vulnerable and less privileged members of the society are also made possible through federally collected tax revenues.

Hence, it is possible to view a government’s decision to tax its citizens to help promote long-term development and assist the poorer nationals who find it challenging to earn a decent income. Tax revenue that is well collected and reinvested will always be worth the initial inconvenience; citizens and workers in more developed countries devote quality time to file their taxes on time since they trust the sovereign authority to utilise the revenue efficiently.

Nigeria’s government taxation programme experience is quite different from what obtains in saner climes. Nigerians often decry the government’s fiscal excesses as the nation’s leaders have normalised accruing taxpayers monies to themselves, acquiring unimaginable wealth at the expense of the poor. For this reason and many others, any attempt to raise taxes is usually greeted with scepticism.

Nigeria’s federal authorities have announced they plan to further stiffen the economy by imposing a new tax on sugar-sweetened beverages in an already heated environment. Many have viewed this new move as highly insensitive, inappropriate and ill-timed; the country is still settling down with the increased value-added tax (VAT) from 5 percent to 7.5 percent, high inflation rate of 15.4 percent, unemployment rate of 33 percent, public debt stock at N38 trillion and a poverty rate of 40.1 per cent, according to the national bureau of statistics (NBS). Further tightening the economy through the new sugar tax may not yield any better results than the country is currently experiencing.

The new tax is set to raise excise duty and sovereign revenue for health-related and other critical expenditure plans in the 2022 budget, according to government sources. However, many have questioned the government’s sincerity concerning this explanation.

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The plan to discourage excessive sugar consumption and raise revenue for the country’s health sector has been criticised by many as suspicious and insincere. Many believe that, although the government has the right to expand its revenue net by taxing the necessary items that may be revenue-enhancing, this current move in the face of a highly troubled economy is not in any way in the best interest of all.

Manufacturers in the beverage sub-sector of the country have contributed significantly to the nation’s commonwealth by providing consumable refreshments to people, revenue to the government and jobs to the unemployed. Taxing the sugar-sweetened beverages sub-sector will undoubtedly mount production pressures on producers, and the incidence of increased production costs will be passed on to the final consumers. This will be felt directly through reduced sales revenue remittance to the government, higher prices of the affected products and massive job losses.

The Director-General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir has lamented a possible 40 per cent revenue loss within five years if the imposed policy sets off. Also, the Nigerian Labour Congress (NLC) President Ayuba Wabba has stated that the policy can generate up to N1.9 trillion loss to the sub-sector if effected.

Furthermore, if the deductions take effect, the government stands to lose up to N197 billion in VAT, company income tax (CIT) and tertiary education tax. Up to 15,000 direct and indirect job losses of ground-floor staff could also be experienced if this new tax sees the light of day.

The industry for the manufacture of non-alcoholic, carbonated and sweetened beverages currently accounts for up to 35 per cent of Nigeria’s total manufacturing output. At the same time, the sub-sector contributed 1.5 million jobs and N202 billion in VAT in the last five years. Therefore, taxing this segment of the nation’s economy without sufficient plans to truly reinvest the expected revenue derived or providing soft production and consumption alternatives will only ridicule past contributions the sub-sector has made so far.

The Nigerian government should simultaneously prioritise proper economic planning that supports a balanced growth strategy across sectors and people. Instead of disrupting meaningfully performing sectors of the economy through half-baked and ill-thought-out policies, the sovereign authorities should seek policies that will promote a tolerable business environment for new and existing investments, reduce excessive sovereign expenditure, reduce public debt, utilise public funds generated through taxes more efficiently and desist from overtaxing its citizens.