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FG’s excise duties hike stuns manufacturers

How manufacturing can drive Nigeria’s economic diversification and trade growth

Manufacturers Association of Nigeria (MAN) has said the Federal Government’s newly revised excise duty rates (taxes) came as a surprise to them.

In a statement on Tuesday, the association said it “came as a surprise to us because, as a major stakeholder, MAN had actively participated in the deliberations on the proposal and presented various positions from its members across all sectors, especially those directly impacted by the proposed measures.”

“From the meeting held with the Minister of Finance, Budget and National Planning on March 29, 2023, MAN representatives were informed that the 2023 proposals on additional excise tax increases were being stepped down until further consultations on the 2023 finance bill,” it said.

It said Nigeria Customs Service was also notified by the Federal Ministry of Finance vide memo Ref. No. F. 17417/351 of February 15, 2023 that the existing fiscal policy measures for 2022 as they relate to alcoholic beverages and tobacco products will take effect from June 1, 2023 and June 1, 2024 as approved in the 2022 roadmap.

Segun Ajayi-Kadir, director general of MAN added that based on the above, its members had finalised their annual strategies and projections while exporting members had concluded pricing negotiations for orders to the end of fiscal period, on the strength of the agreed excise roadmap and recent assurance from the fiscal authority.

“The release of the fiscal policy measures, just over one month to its expected implementation date and the end of the current administration, sends negative signals to the business community locally and internationally with implications for existing and potential investors.

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“It is worrisome that the current situation is indicative of inconsistency in government policy, given that industries that are affected by excise tax administration, already made three-year strategic plans based on the agreed calendar as scheduled in the roadmap including domestic and export sales prices, revenue and volume projections, and tax burden calculations among others,” he said.

According to Ajayi-Kadir, this may create credibility issues for the country with existing and potential investors, impacting Foreign Direct Investments and the country’s Ease of Doing Business index among other implications.

BusinessDay reported on Tuesday, that the revised excise duty rates (taxes) on alcoholic beverages and tobacco products could threaten the survival of firms in the sector.

An analysis of the fiscal policy document signed last month by Zainab Ahmed, minister of finance, budget and national planning, shows that the total specific rate for beer and stout, wines, spirits (per litre) is now N300, a 114.3 percent growth from N140 last year. Tobacco’s specific rate is N8.20 per stick, 95.3 percent increase from N4.2 per stick in 2022.

It is also 76.4 percent higher than the rates they were meant to pay this year before the review and 32.5 percent (N408.2) higher in 2024.

The total ad-valorem rate levied on alcoholic beverages and tobacco products rose by 40 percentage points to 110 percent in June from 70 percent in the same period of last year. The total ad-valorem rate for next year still stands at 110 percent.

Before the taxes were updated, the total ad-valorem rate was previously set to be 70 percent effective in June.

It is alarming and concerning that the implementation of the 2022 to 2024 approved excise roadmap (which commenced on 1st June 2022) has unfortunately not even been implemented for up to one year, before the government decides to ‘shift the goal post, according to MAN.

“This was done without any consultation on or assessment of the impact of the huge increases, which in some cases are up to 50 percent on ad valorem and 75 percent on specific duty rates, over and above the already approved high increases of up to 50 percent and 45 percent respectively,” it said.

Manufacturers warned that the government may unlikely earn more revenue from further excise increases due to significant decline in sales by companies in the sector and that the new policy is likely to fuel illicit trade, industry recession, capacity underutilization, and layoffs among others.

“The unilateral action by the government despite the complaint and persuasion by stakeholders for the fiscal authority to consider the consequences on the industries, businesses and the economy as a whole is quite unfortunate.”

Ajayi-Kadir of MAN recommends the government to maintain the status quo regarding the already government-approved excise duty increases on these items in the three-year roadmap as contained in the 2022 fiscal policy measures.

“This was approved by the President and implementation commenced on June 1 last year. The industry CANNOT afford any further increases at these extremely challenging times,” he said.