Makers of alcoholic and non-alcoholic drinks in Nigeria are currently in a fix as the government rolls out policies with adverse impacts on their businesses, profitability, and productivity.
Beer makers became more anxious after the Federal Government ordered that an excise duty of ₦10 per litre be imposed on all non-alcoholic, carbonated, and sweetened beverages despite numerous objections and pleas by manufacturers and the organized private sector (OPS).
Following the precedence from 2018, experts believe that the government may introduce an additional tax burden in form of a new excise rate on beer products.
Although an indirect tax, it will ultimately be paid by the consumer which is the case on non-alcoholic, carbonated and sweetened beverages whose prices have increased by 33.3 percent, from N150 to N200 per 50cl bottle.
Manufacturers fear that the higher price might lead to reduced consumer purchase which will affect their profitability and cause a ripple effect on employment opportunities among other things as they try to cut costs.
Industry giants like Nigerian Breweries Plc, International Breweries Plc, Guinness Nigeria Plc, among others, have been struggling since 2019 following the increment in excise.
They also struggle with rising production costs including providing an alternate source of electricity, security, and rehabilitating bad roads. Also, the receding cash margins have a direct impact on the manufacturer’s ability to fund expansion, reduce debt, and pay a dividend.
The beer industry in Nigeria is made up of large players who are already frequently taxed and their total tax contribution has increased year on year, and evidence shows the trend on increased collectibles that will continue for the full year 2021.
The Company Income Tax by sectors report in the first quarter of 2021 compiled by the National Bureau of Statistics (NBS) shows that Breweries, Bottling, and Beverages generated the highest amount of CIT with N23.26 billion.
In addition to this, brewers have managed to keep Pay-As-You-Earn (PAYE) tax in a relatively constant position because the industry is doing its possible best to keep employees.
The manufacturers’ CEOs Confidence Index (MCCI) report for the second quarter of 2021 shows that the second major problem of manufacturers is taxation by government agencies, especially issues around tax multiplicity.
This was affirmed by 380 chief executives of manufacturing firms (95 percent of respondents) who stated that multiple taxes and levies charged by government agencies have a depressing effect on manufacturing production.
“Apart from the approved list of taxes and levies to be charged to companies as compiled by the Joint Tax Board (JTB), there is a large number of outside taxes, levies, and fees that are charged to manufacturers by the revenue-generating agencies of the government,” the report states.
In June 2018, when the Federal Government announced an increase in Excise Duty rates of ₦30 per litre for alcoholic beverages, tobacco, etc., Jordi Borrut Bel, former CEO of Nigerian Breweries, said the additional cost translated to approximately a 43 percent increase from the previous average rate of ₦21 per litre.
The company finance experienced a strain as it was difficult to pass on this extra cost to consumers considering their weak purchasing power, added to the already challenging operating environment.
Muda Yusuf, Chief Executive Officer (CEO), Centre for the Promotion of Private Enterprise (CPPE) said manufacturing companies in Nigeria as well as investors, are already stressed grappling with serious macro-economic challenges and structural constraints which are affecting sales, turnover, profitability, shareholder value, and sustainability of the investment.
“An additional tax burden has a potential negative impact on the supply chain which will adversely affect millions of micro-enterprises in the distribution chain,” he said.
Nigeria’s justification to impose excise duties on beer makers, given the same practices in other countries, ignores the peculiarity of her economic operating environment amid inflationary pressure, dwindling income growth, weak naira, and struggling economic growth, among others, which makes the survival of companies and households threatened, hence, the timing of such policy is considered by experts, a bad one.
Segun Ajayi Kadir, director-general, Manufacturers Association of Nigeria (MAN) warned that the Federal Government’s move to commence collection of Excise Duty on non-alcoholic drinks would see producers of the items lose up to N1.9trillion in revenue sales between 2022 and 2025. For beer makers, this could be more.
“The current tough economic situation in the country should see the government introduce fiscal palliatives and tax rebates instead of introducing Excise Duty collections,” he said.
The 2018 Global status report on alcohol and health compiled by WHO revealed that 47.4 Nigerians over the age of 15 abstained from alcohol consumption. Similarly, relative to consumption, alcohol spending is considerably low.
According to experts, this was partly driven by consumers’ sensitivity to price movement in the past few years as they are getting poorer while the rate of unemployment is rising hence consumer products are increasingly becoming inaccessible.
According to the World Bank’s November 2021 Nigeria Development Update report, inflation has pushed 8 million Nigerians into poverty between 2020 and 2021.
Therefore, the imposition of such directives will among other results discourage the purchase of beer by many consumers on the back of higher beer prices in a bid to control the consumption of alcohol. The downside to this is that consumers shift loyalty to cheaper and illicit brands, which are harmful, less regulated, and pose higher health risks. Hence experts believe emphasis should be placed on education and sensitization.
Jide Babatope, an economic expert, says the additional motive behind the recommendation from the two global institutions to help fund primary healthcare across the country is misplaced, noting that major health challenges in Nigeria are not necessarily an end product of alcohol consumption.
“Furthermore, many of these companies are not found wanting in fulfilling their corporate social responsibility, nor do they refrain from carrying out campaigns targeted towards responsible drinking despite the numerous challenges they encounter in carrying out business activities,” he states.
In addition to this, the Federal Government’s budgetary allocation to the health sector has remained low over the years, accounting for 1 percent of the total budget in 2021 with N131.74 billion out of the total N13.08 trillion.
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The COVID-19 pandemic revealed among others the incapacitated nature of the Nigerian health care system and the potential risk to Nigerians if a worse form of a pandemic strikes again in the future.
Experts assert that increasing budgetary allocation and properly regulating the Nigerian health care sector are more sustainable solutions to building a resilient sector.
Mobola Aduloju, a Lagos-based consumer goods analyst, says rather than using tax payment to address consumption of harmful substances, creating awareness and sensitizing consumers will make the much-needed impact.
“Education and sensitization, not tax would address the issue of harmful consumption of alcohol because when beer becomes expensive and not within the reach of consumers, they would be naturally nudged to cheaper illicit and unregulated alcoholic products, which are harmful thereby increasing their health risk,” he explains.
Aduloju also notes that it is important to ensure full recovery of the economy, industry players, and consumers before such directives are issued, noting that the move is in sharp contrast to the World Bank’s recommendation to other countries to incentivize businesses to ensure their survival and recovery in challenging times such as this post-pandemic period.
“It is logical that the industry be allowed to fully recover from the impact of COVID -19 as what seemed to be a recovery as of today is fragile. In addition, the ordinary person in Nigeria also needs to recover from growing poverty in the country and current realities of inflation,” he said.
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