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Soft-Drink Tax: Experts Predict Hyperinflation, Job Loss

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  • Soft-Drink Tax: Experts Predict Hyperinflation, Job Loss

Following the plans by the Federal Government to impose Value Added Tax (VAT) on carbonated drinks, soft drinks and other important products, Financial experts have warned that it will not only have an effect on the company but will lead to loss of jobs in the country.

Recall that the Minister of Finance, Budget and National Planning, Zainab Ahmed while in Washington DC, USA, for the 2019 Annual Meetings of the International Monetary Fund and World Bank, said plans are underway to increase the country’s revenue by introducing excise duties on certain items.

“We are also looking at introducing excise duties on some categories of products especially carbonated drinks and VAT on some categories of imports into the country. But it is not all taxes increases, there is also a proposal to build tax rates for SMEs we also increase the minimum tax level to make it easy for people to plan their taxes,” Ahmed had said.

Reacting to the move, The Nigeria Employers Consultative Association (NECA), Lagos Chamber of Commerce and Industry (LCCI), Manufacturers Association of Nigeria (MAN) and others in separate statements expressed worries on the effect, saying many shops will close, Nigerians will lose their jobs and the inflation rates will also rise.

NECA’s Director-General, Timothy Olawale, said adding another tax to the existing ones will only ruin businesses.

“In our considered opinion, reintroduction of excise tax on non-alcoholic beverages should not be the case. With the myriad of taxes and levies already being paid by businesses, the reintroduction of excise in a sector with high price elasticity means that government is desirous of killing businesses in the sector completely.

He explained that “once prices are increased, consumers will push back, resulting in sharp decline in demand. With the planned increase in VAT, the introduction of excise will further burden operators in the sector with the following consequences: low demand leading to unsold products; incomes squeeze on businesses that are already struggling with low margin and massive staff layoff, which will affect over 250,000 direct and indirect employees in the sector among others.”

On his part, the Director-General of the LCCI, Mr Muda Yusuf opined that “any imposition of tax on carbonated drinks will definitely affect the demand for such products. Such imposition of tax would be another tax apart from the excise tax already paid by the manufacturers of such products.

“Ultimately, the demand for such products might drop due to the attendant increase in price that might occur. Those who could buy would buy at a higher price.”

Also, former President, Association of National Accountants of Nigeria (ANAN), Dr Sam Nzekwe noted that if the FG’s plan is implemented, there will be higher inflation rates.

“If this plan of government to tax soft drinks is implemented, then we should be ready for higher rates of inflation. Already, we have high inflation,” he stated.

He added that “the taxes from the federal and state governments are becoming too many that you don’t know where to place them. Coming up with a new tax regime on soft drinks, I don’t think that is what will solve the funding challenges confronting the budget.”

The Chairman, Food, Beverage and Tobacco subsector of the Manufacturers Association of Nigeria (MAN), Mr Paul Gbededo said, “imposing tax on soft drinks will impact the poor and the masses. Soft drink is what the poor drink to get energy. If government is looking for additional revenue from taxation, the masses will support taxation of luxury items.

“I am aware that it is fashionable to control sugar intake because of health reasons, but we are not there yet. The poor need the sugar because that is where they derive their energy from. If the government is worried about sweetener intake among Nigerians, they can express this through education, telling people the disadvantages of consuming such substance.”

“The cost of doing business in Nigeria is already high; it (excise duty) will further increase the cost. That is why I think it has to be very marginal in order not to discourage new investors who want to come into the industry or make existing investors move to other countries,” A former Director-General, West African Institute of Financial and Economic Management, Prof Akpan Ekpo stated.

Dr Bongo Adi, An economist and Senior Lecturer, Lagos Business School, admitted that “the government is trying to ramp up tax revenue; the truth of the matter is that tax is low in Nigeria. But I don’t know why they need to discourage the consumption of soft drinks.

“If you impose excise duty on a commodity that is price-sensitive, the demand will immediately drop as consumers will find alternatives.”

“I think the way to raise tax is first by growing the economy. I have always maintained that this issue of tax is coming at a very wrong time. Our post-recession GDP is less than two per cent, and we are taking measures that will further endanger the growth of the economy,” he added.

Appointments

Buhari Suspends Hadiza Bala Usman as MD of NPA, Appoints Koko

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Hadiza Bala Usman - Investors King

President Muhammadu Buhari has suspended Hadiza Bala Usman as the Managing Director of the Nigerian Ports Authority, according to sources quoted by Peoples Gazette.

The president immediately appointed Mohammed Koko, the director of finance to replace Ms Usman.

While Ms Usman said she was aware of her suspension, she said she has not received any formal letter or communication to that effect from the Ministry of Transport.

Ms Usman was appointed as NPA chief in 2016 and has repeatedly propagated her reform policies that sought to redirect the organisation, which is one of the top revenue-generating entities of the Nigerian government.

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FCMB Appoints Ms. Muibat Ijaiya as Independent Non-executive Director

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FCMB - Investors King

FCMB Group Plc has appointed Ms. Muibat I. Ijaiya to its Board as an Independent Non – Executive Director, following the approval of the Central Bank of Nigeria.

Muibat Ijaiya is a Strategy Development and Execution expert focused on measurable transformation and impact. She has 19 years consulting and advisory experience, working with clients across Europe, Middle East, Africa and Asia, to provide expert-led solutions that support private and public sector organisations to develop and actively implement their strategies to achieve measurable change, transformation and/or improved performance.

She holds a BSc Mathematics & Education from the University of Surrey and a Warwick Business School MSc. Management Science and Operational Research certificate. She also obtained an MBA from the University of Manchester.

Muibat Ijaiya is a partner at Strategy Management Partners, a professional services organisation focused on helping private and public organisations around the world to clarify, develop, align and execute their strategies.

Prior to this, she was a director with Palladium Group Inc (United Kingdom & Middle East) and previously worked directly with Drs. Kaplan & Norton, the co-creators of the Strategy Focused Organisation and Balanced Scorecard concepts. Other advisory experience was in Corporate Finance with Ernst and Young (UK) focused on Transaction Advisory Solutions, Restructuring, Turnaround and Commercial Due Diligence. She also worked with Robson Rhodes RSM Business Consulting (EMEA) focused on Transformation and Change Management.

Muibat continues to work in advancing the science of strategy execution, particularly for organisations in complex industries and public institutions focused on transforming key sectors, and the Board is assured that her wealth of experience would be of great impact to the FCMB Group.

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Is a ‘Tesla’ About to Eat Construction Equipment Makers’ Lunch?

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With digitalization, electrification and autonomy all set to change the industry, could construction’s established players be wrongfooted by a new market disruptor? Industry thinkers Alan Berger and Carl-Gustaf Goransson discuss who’s in the strongest position: Old guard or Newcomers.

In 2008 no one saw Tesla Motors as much other than a niche electric sports car company. Certainly not other car companies – in 2009 Tesla only made 147 cars. Fast forward 12 years and Tesla is making 500,000 cars a year and is valued higher than the top six car manufacturers combined.

Of course, much has been written about the unexpectedly and disproportionately large disruptive effect Tesla has had on the global automotive industry. Like construction equipment, the car business has been consolidating, with no significant new entrants in a long time. This raises the question as to whether the same thing could happen in the construction equipment world – could a disrupter barge into the sector and win? Indeed, the industry is trying to digest the triple challenges of digitization, autonomous operation and electrification – creating an opportunity for new players to emerge.

Central to the success of today’s OEMs is their extensive product, customer and application knowledge. But given the technical changes that are coming, is that going to be enough to save them from a digital disruptor?

Product

The new era of machines will require a completely new architecture, one that is designed around the capabilities of an electrical drivetrain. It will also be adapted from today’s equipment in order to transfer power with cables instead of belts, and shafts and hoses will enable new ways to optimize performance and productivity. Such a platform will be largely software controlled, moving a portion of feature development from relatively slow-moving mechanical changes to faster and more easily upgradable software changes. That said, by nature, construction equipment does physical work, and the working tools will remain similar to that used today. A disrupter would develop a completely new machine, while existing OEMs could do so only if they resist the temptation to take the ‘easy’ path of adapting current machines. Indeed, OEMs would be able to leverage their vast portfolio of intellectual property to speed this along. Advantage OEM.

Supply chain

Large parts of the supply chain will remain the same, as many components and raw materials of tomorrow’s machines will be like today’s. However, new components will be needed as well, particularly in the drivetrain and hydraulic systems. (If there is a hydraulic system). This has triggered a competitive scramble that is now pitting traditional engine manufacturers against transmission/axle manufacturers and hydraulic component suppliers. While this new competitive dynamic will take time to sort itself out, clearly the traditional supply base is positioning itself to offer the needed new parts. Therefore, existing OEM-supplier relationships – and access to the latest technology – will favor existing OEMs over newcomers. Advantage OEM.

Distribution network

With new, digitally enabled sales models, the traditional role of the dealer is likely to change, and a new player could greatly accelerate this. Just look at the success of Tesla’s direct selling model. That said, construction equipment requires responsive and intensive access to service, which is a vital part of the dealers’ offering. A disrupter could build a service-only network, leveraging established dealers while moving most of the sales activity on-line. This is difficult for existing OEMs and therefore the newcomer has an edge. Advantage disruptor.

Parts/service

It is well known that parts and services drive a large part of total operating income for OEMs. Simplified, software-driven machines require less maintenance and this will negatively impact the traditional business model and reduce the value of existing OEM’s captive parts distribution networks. Indeed, there is no need for a newcomer to develop their own parts network, since there are now third-party solutions such as Amazon. A newcomer can then more easily focus on other sources of high margin recurring revenues – such as offering features-as-a-service. Advantage newcomer.

Access to capital

To fund their existing portfolio and prepare for the technical transformation today’s OEMs have to balance R&D, capital expenditure and operating income – not an easy balancing act. Not so startups, whose compelling business models and few external dependencies can get access to significant capital. All they need to worry about is being focused on developing the new products, services and business. Advantage disruptor Before concluding, there is one additional and important consideration. Tesla was founded well before the automotive industry recognized the need and technology availability. Clearly, this is not the case for the construction equipment industry today. Taking all of these factors together, it seems that the existing OEMs can drive the disruption themselves if they are willing to commit to the extensive and complete transformation needed. But, if none do so, don’t be surprised if someone else decides to do it for or to them.

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