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Hike In Excise Duty: Fear Over Massive Job Losses



The recent directive by the federal government to start the implementation of a new excise duty rates on alcoholic beverages and tobacco products, has brought various reactions among the stakeholders in the industry. OLAJIDE FABAMISE reports,

Under the new excise duty rates approved by President Muhammadu Buhari in March, which came into effect on Monday, consumers of alcoholic beverages and tobacco is to pay more for the products.

In order to implement the newly approved excise duty rates for tobacco, the government said in addition to the 20 per cent ad-valorem rate, each stick of cigarette would attract a N1 specific rate (N20 per pack of 20 sticks) in 2018; a N2 specific rate per stick (N40 per pack of 20 sticks) in 2019 and a N2.90k specific rate per stick (N58 per pack of 20 sticks) in 2020.

For beer and stout, the government said these would attract 30 kobo per centilitre in 2018 and N0.35k per centilitre each in 2019 and 2020.

Wines will attract N1.25k per centilitre in 2018 and N1.50k per centilitre each in 2019 and 2020.

For spirits, the government approved N1.50k per centilitre in 2018, N1.75k per centilitre in 2019 and N2 per centilitre in 2020.

Speaking with LEADERSHIP in Lagos, President, Manufacturers Association of Nigeria, MAN, Dr. Frank Jacob cautioned that the new policy will have drastic effects on employment and productivity, leading firms to shutting operations. This was followed by a call to the government to reverse the changes made.

The MAN President explained that Job losses for people in direct employment are very unlikely because the implication of the excise tax is paltry (N2.90 per pack spread over years) to cause significant changes.

“In terms of indirect employment, tobacco farmers and distribution value chain, the new policy is also very unlikely to severely impact livelihoods because most tobacco farmers practice mixed farming, making it easier to switch to alternative crops if there is a reduced demand for tobacco”.

He said players in the distribution value chain do not solely market tobacco products. “If the new policy effectively reduces the demand for tobacco products, smokers will re-allocate the finances previously spent on tobacco to spending on other consumer goods, which will benefit the value chain of alternative sectors. At the aggregate (macroeconomic) level, we expect to see no significant net job losses. In fact, the reallocation of spending away from tobacco products will lead to productivity gains and job creation by the government in alternative sectors”.

Chairman, Distillers and Blenders’ Association of Nigeria (DIBAN), Chief Patrick Anegbe explained that the new duty approved for implementation by the minister, translates to an increase in duty from current average of N30 per litre to N150 per litre in the first year and N200 per litre subsequently.

According to him, “astronomical hike in the excise duty” will cause loss of 250,000 jobs and investment portfolio of over N420 billion, advising the government to prepare for offshoot.

He said this translates to an increase from current average duty of N270 to N1350 per case (carton) in the first year and N270 to N1800 per case (carton) from second year.

“We are also disturbed that the new hike will not only affect the Wines and Spirit industry but also other key sectors of the economy and businesses such as packaging industries, bottles, cartons, labels, cork, glue, Ink, printing, laboratory, marketing, consulting, media, to mention a few”, he said.

“We are particularly worried that our industry investment of over N420 billion is being threatened by the recent upward review of Excise duties on locally produced Wines and Spirits.

“We strongly hold the view that if the intention of government is to grow local industries, imposing exorbitant duties on locally manufactured goods is a contradiction of that objective”.

He said with the new tariff regime, firms in the sector would face high risk of possible shutdown, especially in the low price segment, which accounts for 78.65 per cent volume of the spirits and wines segment.

He noted that the new excise duty would also penalise average Nigerians as they would no longer be able to afford the new prices that include the exorbitant excise duty.

“The wines and spirits industry is one of the few surviving sectors of the Nigerian economy and all patriots and men of good conscience should strive to ensure that the sector flourishes.

He said given the challenges of border control and illicit market, the attractiveness of the price increase driven by higher duty would result in smugglers bringing in unregistered and untaxed products.

This, according to him, will result to loss of revenue to the government.

“The astronomical increase in the tariff is counter-productive and will lead to massive job loss, turn the country into a dump yard for foreign products, further pauperise Nigerians and stifle growth in an otherwise resilient sector of the economy,” he added.

Speaking, the Director-General, MAN, Mr. Segun Ajayi, said that it was a wrong timing on the part of the federal government to increase the consumption tax without making reference to the prevailing economic conditions in the country.

“The rate is astronomical. This means that there will be 545 per cent on a product that is majorly consumed by the people at the low-end of the market. What you have is raising the hands of the foreign brands. We need to be very strategic because it is a trade issue”.

“If you increase the excise duty because you want to guarantee the health safety of the consumers, you might be doing this in the other way round”.





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