- 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.