A leading economist and private sector advocate, Dr. Muda Yusuf, has described proposed the re-introduction of excise duty on the production of soft drinks in the country by Nigeria Customs Service (NCS) as ill-timed, insensitive and most inappropriate given the prevailing harsh economic and business conditions.
Yusuf, the immediate past Director General of the Lagos Chamber of Commerce and Industry (LCCI) in a statement issued on Sunday, who recalled that the position of the NCS on the fiscal move was expressed at a recent interaction with the National Assembly on the 2022–2024 Medium Term Expenditure Framework [MTEF], faulted the proposal on the grounds that the citizens and the business community were experiencing a galloping and volatile inflationary condition which is unprecedented.
In addition, the seasoned economic analyst pointed out that the proposal was also a negation of the economic recovery and job creation aspirations of the Federal Government as many upcoming small businesses in the beverage sector would be hard hit by the proposal.
According to him, millions of micro enterprises in the soft drinks’ distribution chain will be adversely impacted by the imposition of the excise tax with the attendant negative implications for ongoing drives by the President Muhammadu Buhari-led government towards job creation and poverty reduction in the country.
Yusuf lamented that Nigerian manufacturing companies, and indeed most investors, were currently going through tremendous stress at the moment, including grappling with serious macro-economic challenges and structural constraints impacting on capacity utilization, productivity and competitiveness.
He explained that the challenges were adversely affecting sales, turnover, profitability, shareholder value and the sustainability of investments.
The private sector advocate pointed out that the norm globally at this time indicated that governments should provide incentives for industries to aid their recovery from the shocks of the COVID-19 pandemic and escalating costs, cautioning that Nigeria cannot afford to be doing the exact opposite but should aid the real sector operators across all product segments, especially in the light of the unprecedented escalation of production and operating costs.
On some of the current challenges which manufacturers are grappling with, Yusuf explained that economy was still at a recovery phase and many manufacturing companies are yet to recover from the shocks and dislocations inflicted by the pandemic and the recession that followed.
He expatiated: “Manufacturing contribution to GDP is still less than ten percent. The growth recorded in the sector in the second quarter of 2021 was a mere three percent (3%). Giving the strategic importance of manufacturing to an economy, what the sector needs at this time is more stimulus to ensure better contribution to the GDP.
“Manufacturers are currently contending with a serious crisis resulting from liquidity in the foreign exchange market and sharp depreciation in the exchange rate which is impacting adversely on the cost of production. Many manufacturers are not able to import vital raw materials, a situation which is severely inhibiting their production and productivity.
“Manufacturers are suffering from intense pressure on cost of production arising from numerous structural bottlenecks. This situation is creating sustainability challenges for investors in the sector, especially those in the SME segment. They have experienced significant spikes in the cost of raw materials, cost of fund, high import duty, elevated energy cost, prohibitive cost of transportation and high cost of logistics. A huge proportion of these costs cannot be passed on to the consumers because of high consumer resistance.
“The economy is currently characterized by weak purchasing power which is taking a huge toll on sales and turnover of many manufacturers, leading to high inventory of manufactured goods.
“Many manufacturers are currently struggling with unfair competition, especially from products imported from Asia which has flooded the Nigerian market, largely because of the porosity of the borders. These imports are often much cheaper than goods produced locally.
“Energy cost is currently at an all time high, the cost of diesel is already at the threshold of three hundred naira (₦300) per litre as against two hundred naira (₦200) per litre a year ago. The cost of gas is on the increase, availability of gas is an issue. Industrialists are also experiencing sharp increases in electricity tariffs provided by the Electricity Distribution Companies, the Discos.
“The cost of logistics has continued to be on the upward trend. Some of the reasons for this are the states of the roads, the limited freight capacity of the railway system, the crisis situation at our major ports, the traffic gridlock around the Lagos ports, the numerous check points around the ports and beyond”, Yusuf added
He recommended that in the light of the above challenges, the proposition to re-introduce excise duties on a segment of the food and beverage industry should be put on hold as the excise duty proposition was not consistent with the desire of the government to create jobs and to lift hundred million people out of poverty in 10 years.
The seasoned economic analyst stressed that anything, it constituted a negation of the President’s aspiration on job creation and alleviation of poverty, and, therefore, implored the National Assembly and the Federal Ministry of Finance to put on hold any move to impose excise duty on any segment of the Nigerian manufacturing sector.
He further clarified: “The manufacturing sector offers a good platform for the laudable aspiration of President Buhari to create jobs and lift people out of poverty. But if the burden of tax becomes excessive and unbearable on this critical sector of the Nigerian economy, the achievement of job creation and poverty alleviation promised by the president will be difficult to achieve.
“It is worthy of note that manufacturers [including soft drinks producers] are already paying numerous taxes and levies which put a lot of pressure on them. Some of the taxes and levies that are already being paid include: corporate income tax of 30%, education levies of 2%, VAT 7.5%, withholding tax, land rent, environmental tax and numerous unofficial taxes.
“There are also multitude of fees and levies imposed by many other government agencies at the federal, state, and local government levels. The appeal is that the Nigeria Customs Service and the National Assembly should have a rethink on this matter”, the expert canvassed.