…Still on alcohol beverages, tobacco products’ price hike

Many Nigerians were taken aback by the new rates for alcohol and tobacco products recently announced by the federal government. In this report, BENJAMIN UMUTEME examines the implications of the decision on Nigerians.

Nigeria slipped into recession in 2015 after its major source of revenue received a bashing when global oil price crashed from $114 to less than $30 a barrel in mid-2014, causing the country to witness consecutive negative growth in the economy.

The implication was that the purchasing power of the average Nigerian fell; there were massive job losses as many manufacturing concerns had to close shop.
However, as oil price picked up, the economy began to come back to life due to increase in revenue from oil sales. This went a long way to aid the country quickly escape the recession dungeon towards the end of 2016.

And in a bit to avoid the pitfalls of the past, the present administration of President Muhammadu Buhari introduced several measures to generate revenue without having to solely rely on crude oil.

Part of it was the need to harness the huge potentials inherent in the country’s tax administrative system, especially with the country’s population close to 200 million.

One of such is the duty on tobacco and alcohol which is said to be the lowest globally.

In announcing the government’s decision in a statement, the Minister of Finance, Mrs. Kemi Adeosun, said the increase was to raise the government’s fiscal revenues, adding that it would also reduce the health hazards associated with tobacco-related diseases and alcohol abuse.

Under the new rates for tobacco, in addition to the 20 per cent ad-valorem rate, each stick of cigarette will attract one naira specific rate per stick; that is N20 per pack of 20 sticks in 2018.

She said that in 2019, tobacco will attract two naira specific rate per stick or N40 per pack of 20 sticks. The minister said that by 2020, tobacco would begin to attract N2.90 kobo specific rate per stick or N58 per pack of 20 sticks.

Adeosun explained that Nigeria’s cumulative specific excise duty rate for tobacco was 23.2 per cent of the price of the most sold brand. This is as against 38.14 per cent in Algeria, 36.52 per cent in South Africa and 30 per cent in Gambia.

She said also that the new specific excise duty rate for alcoholic beverages cut across beer and stout, wines and spirits for the three years.

Under the new regime, beer and stout will attract 0.30k per centilitres in 2018 and 0.35k per centilitres each in 2019 and 2020. Wines will attract N1.25k per centilitres in 2018 and N1.50k per centilitres each in 2019 and 2020, while N1.50k per centilitres was approved for spirits in 2018, N1.75k per centilitres in 2019 and N2 per centilitres in 2020.

IMF factor

The International Monetary Fund (IMF) Mission Report at the end of its 2018 Article IV consultation on Nigeria recommended a 100 per cent increase in excise duty rates imposed on all alcoholic beverages and cigarettes in Nigeria to conform to global norm.

According to the Bretton Wood Institution, the excise duties rates for alcoholic beverages and cigarettes were very low and should be reviewed as “a fail-proof revenue raising strategy.”

The IMF also recommended that the excise duties for the two commodities should be converted from “ad valorem to specific rates” to reflect the external cost of consumption and production.

For tobacco, IMF noted that the excise duty levels were gradually being adjusted upwards globally in conformity with the tobacco convention goal of achieving an excise burden equals to 65 per cent of the retail price per pack of 20 cigarettes, equivalent to about N400.

The global norm

The minister sai d Nigeria’s cumulative specific excise duty rate fortobacco stood at 23.2 per cent of the price of the most sold brand, as against 38.14 per cent in Algeria, 36.52 per cent in South Africa and 30 per cent in Gambia.

In Ghana, beer and other alcoholic beverages attract excise duty rates of 47.5 per cent, while local spirits, including Akpeteshe attract 25 per cent duty. The duty for tobacco products is 150 per cent for cigarette and cigar, $12 per kilogramme for Negrohead and 170.65 per cent for snuff and other tobacco products.

In Senegal, the duty for alcoholic beverages is 40 per cent and 45 per cent for tobacco, five per cent for coffee and tea.

Reactions on decision

Reactions continue to trail the federal government’s decision to increase duties on tobacco and alcohol. While some say the increase is good for the country others say the timing is wrong.

For the Consumer protection Council (CPC), the proposed increase would reduce the risk of diseases even as he added that government’s approach would foster consumer confidence, provide regulatory clarity and prioritise safety.

Similarly, Civil Society Group, FoEN described the decision to increase excise duty on tobacco as praise-worthy.

Deputy Executive Director, FoEN, Akinbode Oluwafemi, said: “We applaud the federal government for acceding to the popular wishes of Nigerians for tobacco products to be priced beyond the reach of our kids and the poor who are unfortunately targeted by the tobacco industry through their cheap but lethal product.

Similarly, the President, Business Renaissance Group, Mr. Omife Omife, said the hike in excise duty for alcoholic beverages was long overdue.

He said alcoholic beverages and tobacco were classified under luxury goods, adding that “those who want to consume such products should be willing to pay more taxes.”

On the other hand, Distillers and Blenders Association of Nigeria (DIBAN) have rejects the new “astronomical increase” in excise duty being imposed on domestic wines and spirits.

According to the Association, the hike poses a threat to the N420 billion investment of the industry.

They noted that the government did not consult with them before embarking on the increase at the same they expressed worry that the situation poses a threat to the job of over 250,000 connected SMEs staff.

Also, the National Union of Food Beverage and Tobacco Employees (NUFBTE) has warned that over 20,000 jobs may be lost due to the increase.
NUFBTE President, Lateef Oyelekan, said employers in the industry have notified the union they may have to downsize as the new tariff would impact on the cost of production.

“This new policy of the government will increase the cost of production and if that happens, the employers would have to look for a way of cutting cost, and workers are always the first option,” he said.

For many others, the government should have considered the present economic realities on ground before making the pronouncement.

A finance analyst, Mr. Friday Efih, wondered why the government would choose to increase rates for alcohol and tobacco when it is aware that the purchasing power of Nigerians is very low.

According to him, it does not make economic sense especially at this time that underemployment and unemployment is still very high.

“Apart from the oil sector that has exited recession; all other sectors are still technically in recession. So to me, economically the decision is wrong as it has the potential of further aggravating the already dicey employment situation in the country,” he said.

For the NUFBTE President, the new tariff would not only make Nigerian companies uncompetitive, it would further encourage importation instead of local production.

He said, “the British American Tobacco (BAT) has just decided to make Nigeria its African headquarters where all its products for other African countries would be produced, but this may make the company to relocate to any other African country with much more favourable policy.

“We can recall that Dunlop, Mitchellin relocated to Ghana due to unfavourable policy and now produce there and still bring the products to Nigeria because this is where the market is. That means Nigeria is providing employment for foreigners while our people walk in the streets daily looking for jobs. It is sad!”

Consequent upon the foregoing, a coalition of business groups has given the federal government a 30-day ultimatum to review the excise duty on alcoholic beverages and tobacco products, with a view to reducing it to reflect present day reality. According to the group, the astronomical increase in excise duty was bound to endanger the sector if not reviewed and reversed.

For Pascal Odeh, a resident of Jikwoyi, a surburb of the Abuja,the increase is bound to affect his business.

Odeh, who runs a ‘drinking joint’ fears that a bad situation will be further worsen as sales over the last two years is no longer what it used to be saying that he is managing to keep the place running.

Speaking in pidgin English, he said: “Bros, this government wan wound person be that o. We dey complain say market no dey like during President Jonathan time, dem come dey increase price of beer and cigarette again. I tire oo!”

Whichever way, the increase has come to stay as the government is determined to explore other sources of financing its budget whichcontinues to increase each year.

Be the first to comment

Leave a Reply