20% excise on MSMEs will hurt operators, Experts warn FG

“In essence, this tax proposition is a negation of the quest for job creation and poverty reduction.

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MSMEs

Some economists and industrialists have faulted the proposed 20 percent excise on carbonated and non-alcoholic beverages, saying it would adversely affect Micro, Small and Medium Enterprises (MSME) operators.

Mr Segun Kuti-George, Former Chairman, Nigerian Association of Small Scale Industrialists (NASSI), in an interview with the News Agency of Nigeria (NAN), noted that MSMEs were already overburdened by several challenges.

According to him, the country cannot continue to look for money with the wrong policies to the detriment of small businesses.

He noted that while large companies such as Coca-Cola could bear the burden of additional tax and sometimes pass the burden to consumers, smaller operators in the beverage industry could not.

BRANDPOWER reports that the Federal Government on June 29 proposed a 20 per cent excise on alcoholic, non-alcoholic beverages and tobacco.

The development, according to Mrs Zainab Ahmed, Minister of Finance, Budget and National Planning, could result in a potential addition of N3.8 trillion annually in revenue under the Accelerating Revenue Mobilisation Reforms (ARMOR).

Kuti-George proposed the exemption of those categories of operators and the reduction of the previously added N10 excise to N1 for MSMEs.

“As soon as the N10 excise duty was announced, drinks went as high as N200 per 50cl bottle.

“You cannot be charging the big players and the ones just coming up the same thing; doing that would lead to them folding up and making it look like the Nigerian environment is not favourable for start ups.

“An already tax-burdened MSME would likely fold up, thereby releasing employees into the already crowded employment market, leading to increased crime rates.

“So, what can happen is to exempt MSMEs from these charges or reduce the charges so that they can survive while government makes money,” he said.

Dr Muda Yusuf, Founder, Centre for the Promotion of Private Enterprises (CPPE), stated that the 20 percent tax proposal would hurt the food and beverage sector, hinder manufacturing performance and add more to the country’s inflationary pressures.

According to him, players in the food and beverage sector and manufacturing generally are burdened by high production and operational costs, multiple taxations among others.

As a result, Yusuf stressed that it was unfair to contemplate an additional tax on the already struggling sector.

He added that the proposal was not without implications on job creation and retainment.

“In essence, this tax proposition is a negation of the quest for job creation and poverty reduction.

“Besides, the food, beverage and tobacco sectors have excellent records of backward integration with inherent multiplier effects on jobs and incomes.

“CPPE strongly advises against the contemplation of an additional tax on this critical sector of our economy,” he said.

Mr Teslim Shitta-Bay, an economic analyst, said while government projected N81 billion should the additional excise be successful, the N10/per litre tax on carbonated non-alcoholic drinks had already led to a 16 per cent fall in industry revenue.

Given that, he affirmed that the ugly scenario which would be created would affect the overall economic productivity the government was trying to protect.

He faulted the attempt to use the sugar angle to rationalise an economic virus that may become a pandemic to be unleashed on the non-alcoholic beverage industry.

He noted that 70 percent of citizens’ medical bills in the country were private expenses, added that the call for government to raise taxes to cover these private expenses was perplexing and inconsistent with best global tax practices.

According to Shitta-Bay, there is no justification to use health to rationalise simply because the carbonated soft drinks sector had not violated the sugar consumption regulations.

“Drawing a parallel with the tobacco sector case; the sector also suffered a similar fate of the imminent dangerous trajectory that the carbonated soft drinks is being pulled towards.

“The regulatory position was such that advertising of tobacco was banned.

“Meanwhile, the effect of that was that smokers migrated to other unregulated substances and drugs including tramadol and sundry substances.

“Similarly, when the cost of carbonated drinks go higher in view of the reality of the additional excise tax, those who consume these drinks will look for alternatives that the government cannot control and access their distribution,” he said.

He, however, noted that while controlling sugar consumption was essential, raising taxes was not the solution.

Shitta-Bay said the best way to control sugar consumption was by setting and enforcing regulations around the amount of sugar used in carbonated drinks.

He further stated that a social awareness programme explaining the consequences of excessive sugar consumption should be made with messages placed on non-alcoholic carbonated drink bottles, like those on cigarette packs.