Why Brand Owners Are Fretting Over ‘’Sugar Tax’’, As Increase In Prices of Carbonated Drinks Loom

It is no longer news that the federal government has introduced an excise duty of N10/litre on non-alcoholic, carbonated and sweetened beverages. Since, the announcement brand owners and consumers have faulted the policy and analysts fear that increase in price of soft drinks loom.

Noteworthy, an online news platform, Ripple Nigeria, reported that the first call to tax non-alcoholic drinks under President Muhammadu Buhari’s administration came in 2019, through Minister of Finance, Zainab Ahmed. Last year, Hameed Ali, the comptroller-general of the Customs also backed the request.

Ali said the reason was due to the injurious effect of consuming soft drinks, similar reasons were earlier given for the taxation of alcoholic beverages, and Ahmed also backed this claim when the Finance Minister announced the introduction.

Similarly, a daily newspaper also reported that in 2019, the Minister of Finance, Zainab Ahmed, had prepared the minds of Nigerians for a possible introduction of excise duty on carbonated drinks. In his character, the Comptroller-general of the Nigeria Customs Service (NCS), Hameed Ali, in 2020 also hinted on the introduction of excise duty on imported soft drinks. Riding on the back of the new ‘Sugar Tax’ in section 17, and the 2021 Finance Act, both agencies of the federal government are set to raise excise duties and revenues from the carbonated drinks sector.

According to the government’s explanation, the tax was introduced due to health considerations. Therefore, it was called the “Sugar Tax”. Meanwhile, Sugar is one of the key components in soft drinks.

Remarkably, according to market Research, the carbonated soft drinks market in Nigeria was valued at about 1.63 billion USD (calculated in retail prices) in 2015. For 2025, the soft drinks market in Nigeria is projected to reach 9.55 billion USD (in retail prices), thus increasing at a growth rate of 17.26% per annum for the period 2020-2025.

Analysts are of the view that the introduction of excise will reduce production capacity causing manufacturers to struggle to meet investor commitments as well as cause investor to take investments to other countries.

After a detailed examination, the International Journal of Scientific and Research Publications (IJSRP), concluded that excise duties leads to high production costs, which adversely affect production levels resulting in dwindling profits. This will grossly impact the small and emerging business owners in the non-alcoholic beverage sector.

The Manufacturers Association of Nigeria (MAN) through its Director-General, SegunAjayi-Kadir, said, “the introduction of excise duty of N10/litre on non-alcoholic, carbonated and sweetened beverages, despite its potential overwhelming negative impact is rather unfortunate. The excise duty tax would affect the sub-sector, which has contributed significantly to the economy and taxes, despite the debilitating effects of naira devaluation, the inadequacy of forex, and the COVID-19 pandemic. The government’s revenue aspirations introducing this excise might not be realised in the long run.’’

He added that ‘‘government is estimated to generate an excise tax of N81bn between 2022-2025 from the group. This will not be sufficient to compensate the corresponding government’s revenue losses in other taxes from the group. The move might lead to employee salary reduction, retrenchment, and general increase in prices of goods, thus putting the products out of the reach of the poor segments.’’

Noteworthy, the prices of most PET soft drinks are currently N150. Recall, it was increased from N100 to N150 last year and sales according to retailers is trying to stabilize gradually while an increase in price especially at this period would further reduce sales. Also, some consumers disclosed that they may have to cut down their level of consumption if prices are increased again.