VICTOR OKEKE writes on what the country stands to gain when federal government increases taxation on tobacco products as canvassed by stakeholders.
Of recent, the call for increased taxation on tobacco products has been on the front burner.
The call has become strident by the day with civil society organisations leading the campaign.
Taken into account, the dangers posed by tobacco consumption to public health, stakeholders posit that the federal government needs to step up control efforts towards curbing the use.
Tobacco use contributes majorly to high incidence of non communicable diseases in developing countries, including Nigeria.
According to them, increased taxation on tobacco products, which is another form of tobacco control, would invariably reduce demand by minors, who are easy prey for the tobacco companies.
Recently, the Federal Ministry of Health in collaboration with the Civil Society Legislative Advocacy Centre (CISLAC) and University of Cape Town (UCT) convened a two-day workshop on tobacco taxation in Nigeria supported by the African Capacity Building Foundation.
The workshop had policy makers and tobacco taxation experts drawn from the Federal Ministry of Health (FMoH), Federal Ministry of Finance, Federal Ministry of Budget and Planning, Federal Ministry of Industry, Trade and Investment (FMITI), Federal Inland Revenue Service (FIRS), Nigeria Customs Service (NCS), ECOWAS, Civil Society Organisations (CSOs), the media, International Development Partners and the University of Cape Town, South Africa in attendance.
The stakeholders posited that tobacco use remained a major threat to public health and it kills more than 7 million people globally each year of which more than 6 million are from direct tobacco use, and almost 890,000 from exposure to second hand tobacco smoke.
The low and middle-income countries like Nigeria contribute 80 per cent of the tobacco-related diseases and deaths.
However, they observed that Nigeria has one of the lowest excise duty rate on finished tobacco products.
The retail price of a pack of 20 sticks of cigarette of the most popular brand consists of about 20 per cent of total taxes which is far below the WHO recommended 70 per cent excise tax burden in the retail price.
In her remarks, the chair, National Tobacco Control Committee (NATOCC), Dr Christian Ukoli, said increased taxation on tobacco is key because if the tax is increased, the cost of tobacco will be increased while limiting access to it, thereby reducing or eliminating the attendant health risks.
Calling on the federal government to expedite actions on the introduction of excise duties on imported excisable products, including tobacco, she said raising the consumer price of tobacco products by increasing tax is one of the most effective ways to reduce tobacco use, for every 10 per cent increase in price, there’s an estimated 4-7 per cent decrease in consumption.
Meanwhile, the WHO recommends reaching or exceeding a tax rate that corresponds to at least, 45 per cent of the total cigarette price.
Also in her submissions, the ECOWAS representative, affirmed that increased tobacco taxes can help expand government revenue base to mobilize additional resources to fund public service programmes, particularly, public health financing, and a reduction in tobacco use.
She noted that the introduction of specific excise taxes enhances the impact of Sin taxes on public health as it is easier to administer than the Ad Valorem. The combination of the two is recommended in line with the ECOWAS draft directive on harmonization of excise duties on tobacco products in ECOWAS member states.
The stakeholders in the communiqué issued at the end of the two-day meeting, observed that the federal government is further losing revenue as activities of the tobacco industry remain unlicensed which fall short of Section 29 of the National Tobacco Control (NTC) Act, 2015.
The ECOWAS representative said within ECOWAS, there are supplementary acts which bind because supplementary acts are passed by the heads of state and it has regulations.
She said, “We have directives and protocols, if you look at the presentation, almost all the legal acts are directives. Directives in itself is flexible, that is why there is always a link between A and B so that the countries will decide which means to apply.
“Assuming it is supplementary act that is very binding; regulations are also very binding. In terms of enforcement, I think that it is a challenge to us. Monitoring and evaluation is a challenge but this is something that we want to improve on so that is why we have a drive directive on the institutional framework for monitoring exterior. If we are able to adopt the directive that has the national monitoring unit and the regional monitoring unit functioning, then we will be able to monitor the implementation of the various directives in terms of taxation.
On the issue of tobacco taxation, she said, ECOWAS was looking at the revenue angle as well as the health aspect, saying, “because you reckon that if we increase taxation, in the long run, you will end up making the price of tobacco very expensive beyond the reach of the ordinarily persons or beyond the reach of children.
“So taxation and tobacco go hand in hand. We increase it, we get more revenue and sometimes, we also try to control consumption and reduce it as well because if it becomes very expensive, the children of the under-age will not be able to afford it.
“In terms of licenses, it is also related because if you talk about revenue, ideally all companies are supposed to register with the Inland Revenue or FIRS as we have in Nigeria before you can even operate and get your registration certificate. So, levies, taxation, licenses they are all in. The issue of VAT harmonisation, the first protocol was to encourage member states to establish VAT and in the protocol, we gave a range of 5-20% so that was the acceptable rate at that time. But presently, most of the member states are implementing between 15-20 per cent.
“It is only in Nigeria that we are implementing 5%. We are trying to engage to see how best we can increase VAT in Nigeria and because we don’t have the usual income from oil now, we need tax revenue to support our target.
“Looking at the population of Nigeria and our capacity, if we are able to increase VAT, I believe that we will be a position to support the budget for tobacco and all products. I’ m enjoying the 5% of VAT but realistically, let us also look at how we can support our government to mobilize domestic revenue for development.
Also, the stakeholders said there was immediate need to operationalise the Tobacco Control Fund in line with Section 8 of the NTC Act, 2015, in order to fulfil the objectives of the Act.
According to them, there was need to put in place, a robust funding mechanism for the Tobacco Control Fund (TCF) beyond the budgetary provisions to aid the activities of the Tobacco Control Unit (TCU) and National Tobacco Control Committee (NATOCC) through allocation of 50 per cent of collectible levies on tobacco products into the TCF.
The chairman, National Tobacco Control Committee, (NATTOCC), Prof Christiana Okoli, said since the committee was inaugurated, the main challenge has been that of having regular meetings to effect the development of infrastructure.
She attributed this to financial constraints, saying, ‘but now I’m happy with this discussion about taxation. We are going to have a tobacco fund to assist us in carrying out some of our activities and we are getting a lot of awareness from different partners and they are assisting us so things are going to move from where we were last year to a better platform.”
“That is why I made a comment that we are starting from the scratch, so most of these things we are just beginning to address them.”
The NATOCC chair said her committee had strategized on how to implement the nine aspects of the control act, arising from an implementation policy meeting.
“So, we have done a lot of work on the implementation. The whole process is not easy. We are working on how to implement this and this is going to involve a lot of strategic meetings like what we are having now. There is a lot of documentation and a lot of tutoring of the public so we are really at the beginning of all of these and like I said, I’m very happy with the steps that we have taken.
“The partners are giving us a lot of assistance, both financially, technically and in terms of resource personnel. So, we hope that with this interest, things will continue to move better.”
The stakeholders at the meeting, observed that illicit trade in tobacco products is a real and emerging challenge in not just Nigeria but across the entire West African sub region as activities of smugglers and other vested interests in the tobacco industry constantly attempt to undermine national authorities in their efforts to combat the menace.
They recognised the need to fast track the process to ratify protocol to Eliminate Illicit Trade in Tobacco Products as well as adopt a track and trace system in order to enhance revenue collection efficiency by preventing leakages and smuggling of tobacco products.
Making his presentation, the assistant director, Tax Policy, Federal Ministry of Finance, Basheer Abdulkadir, said the ministry was looking at implementing this in 2018 in line with Section 13 of the Customs Excise Tariff Consolidation Act.
He said the President has power to impose or to remove any Schedule to the CET Consolidation Act as the excise comes under Schedule 6, saying, “ It is about 20 per cent and we are looking at introducing specific rates of tax on tobacco and as soon as the President signs it, the Nigerian Customs will commence implementation immediately.
“Again, the ECOWAS CET allows for 20 per cent duty rate on finished product. So tobacco is a finished product that can attract 20 per cent even though we have a levy of 50 per cent on tobacco currently. This is because the law does not allow you to charge excise on imported goods in Nigeria. We have to amend that part of the law because Part 3, Section 21, CET Act says that goods manufactured in Nigeria are liable to excise. We have to amend that section to see imported and locally manufactured goods liable to excise.
Abdukadir, however, noted that some other ECOWAS member states don’t charge levy on tobacco, as they use excise.
“From 2018, we are introducing a specific rate apart from the excise and when we amend that section of the law, then we can begin to charge excise on imported tobacco, including alcohol.”
He disclosed that the Federal Ministry of Finance was working on a track and trace system for alcohol and tobacco and trying to engage companies to provide this so that every cigarette pack will have a 12 digit indelible mark so that when tobacco products are brought into the country, the numbers on the tobacco are registered on the Customs data base.
According to Abdulkadir, without the track and trace system, illicit trade will grow very high in the country.
He said, “we have one of the lowest excises for tobacco in the sub-region and this has reduced the rate of smuggling because if it is high, you will create room for smuggling. That is why we need to have the track and trace system in place when increasing the excise on tobacco.
“There is no legislation on luxury items in Nigeria currently. If you want to increase VAT, it has to cut across board. What we try to do on imported items is to use the additional levy under the Supplementary Protection Measures in the ECOWAS CET.
“For tobacco and alcohol which can be likened to luxury items, we have the additional levy of 50 per cent. Even when we increase the excise, it is going to be applicable both to local and imported products by the time we amend that section of the law that we would be able to use the excise because by 2019 when we convert fully into the ECOWAS CET, you cannot even put levies on those items. You will not go beyond the 30 per cent duty rate in the ECOWAS Common External Tariff.
“Again, why we are not even increasing the VAT is because, if you look at the consumption rate in Nigeria, it is about 67 trillion and when compared to 5 per cent of that, it is about 30 million. What we generate as VAT is less than a trillion.
“So, we need to bring more people into the net and there is need for efficiency in the collection to bring in more because if you increase the VAT, those who are not paying wouldn’t pay. It is those who are paying that will pay the increase. That is what FIRS is trying to do, to increase the efficiency of collection so that when you have your VAT rate, more people will pay and the amount collected will go up to 1.5 trillion in a year after discounting the exemptions. That will mean you have more people in the net.”
The Federal Ministry of Health provided the leadership and coordination for the workshop and participants were happy because of the credible outcome
The director, Non Communicable Diseases, Federal Ministry of Health (FMoH), Dr Ordu Donald, expressed the hope that within the next couple of months, tobacco taxes would be raised.
“We are going to communicate the Federal Ministry of Finance through the report of the findings of this workshop for them to commence the process of raising tobacco taxes”.
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